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The zones of discrimination for M-Score is as such:
An M-Score of less than -2.22 suggests that the company is not an accounting manipulator.
An M-Score of greater than -2.22 signals that the company is likely an accounting manipulator.
During the past 13 years, the highest Beneish M-Score of Morningstar Inc was -2.20. The lowest was -2.75. And the median was -2.56.
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Z-Score) or business trend (F-Score), M-score can be used to detect the risk of earnings manipulation. This is the original research paper on M-score.
The M-Score Variables:
The M-score of Morningstar Inc for today is based on a combination of the following eight different indices:
|M||=||-4.84||+||0.92 * DSRI||+||0.528 * GMI||+||0.404 * AQI||+||0.892 * SGI||+||0.115 * DEPI|
|=||-4.84||+||0.92 * 1.0168||+||0.528 * 1.0692||+||0.404 * 1.1255||+||0.892 * 1.081||+||0.115 * 0.9919|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9423||+||4.679 * -0.0571||-||0.327 * 1.1995|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $125.0 Mil.|
Revenue was 193.106 + 189.385 + 181.165 + 180.5 = $744.2 Mil.
Gross Profit was 112.964 + 107.998 + 105.451 + 107.562 = $434.0 Mil.
Total Current Assets was $388.3 Mil.
Total Assets was $1,020.2 Mil.
Property, Plant and Equipment(Net PPE) was $112.6 Mil.
Depreciation, Depletion and Amortization(DDA) was $52.2 Mil.
Selling, General & Admin. Expense(SGA) was $219.9 Mil.
Total Current Liabilities was $290.9 Mil.
Long-Term Debt was $0.0 Mil.
Net Income was 30.18 + -9.769 + 26.376 + 31.327 = $78.1 Mil.
Non Operating Income was -0.813 + 5.264 + 0.28 + 1.852 = $6.6 Mil.
Cash Flow from Operations was 8.6 + 54.804 + 11.884 + 54.445 = $129.7 Mil.
|Accounts Receivable was $113.7 Mil.
Revenue was 173.482 + 175.428 + 168.856 + 170.609 = $688.4 Mil.
Gross Profit was 101.06 + 111.001 + 107.206 + 109.969 = $429.2 Mil.
Total Current Assets was $489.4 Mil.
Total Assets was $1,074.2 Mil.
Property, Plant and Equipment(Net PPE) was $99.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $45.3 Mil.
Selling, General & Admin. Expense(SGA) was $215.9 Mil.
Total Current Liabilities was $255.3 Mil.
Long-Term Debt was $0.0 Mil.
1. DSRI = Days Sales in Receivables Index
A large increase in DSR could be indicative of revenue inflation.
|DSRI||=||(Receivables_t / Revenue_t)||/||(Receivables_t-1 / Revenue_t-1)|
|=||(124.966 / 744.156)||/||(113.688 / 688.375)|
2. GMI = Gross Margin Index
Measured as the ratio of gross margin in year t-1 to gross margin in year t.
Gross margin has deteriorated when this index is above 1. A firm with poorer prospects is more likely to manipulate earnings.
|=||(GrossProfit_t-1 / Revenue_t-1)||/||(GrossProfit_t / Revenue_t)|
|=||(107.998 / 688.375)||/||(112.964 / 744.156)|
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
|AQI||=||(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t)||/||(1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)|
|=||(1 - (388.344 + 112.584) / 1020.175)||/||(1 - (489.4 + 99.007) / 1074.15)|
4. SGI = Sales Growth Index
Ratio of sales in year t to sales in year t-1.
Sales growth is not itself a measure of manipulation. However, growth companies are likely to find themselves under pressure to manipulate in order to keep up appearances.
5. DEPI = Depreciation Index
Measured as the ratio of the rate of depreciation in year t-1 to the corresponding rate in year t.
DEPI greater than 1 indicates that assets are being depreciated at a slower rate. This suggests that the firm might be revising useful asset life assumptions upwards, or adopting a new method that is income friendly.
|DEPI||=||(Depreciation_t-1 / (Depreciaton_t-1 + PPE_t-1))||/||(Depreciation_t / (Depreciaton_t + PPE_t))|
|=||(45.338 / (45.338 + 99.007))||/||(52.171 / (52.171 + 112.584))|
6. SGAI = Sales, General and Administrative expenses Index
The ratio of SGA expenses in year t relative to year t-1.
SGA expenses index > 1 means that the company is becoming less efficient in generate sales.
|SGAI||=||(SGA_t / Sales_t)||/||(SGA_t-1 /Sales_t-1)|
|=||(219.894 / 744.156)||/||(215.872 / 688.375)|
7. LVGI = Leverage Index
The ratio of total debt to total assets in year t relative to yeat t-1.
An LVGI > 1 indicates an increase$sgai= in leverage
|LVGI||=||((LTD_t + CurrentLiabilities_t) / TotalAssets_t)||/||((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1)|
|=||((0 + 290.887) / 1020.175)||/||((0 + 255.339) / 1074.15)|
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
|=||(NetIncome_t - NonOperatingIncome_t||-||CashFlowsfromOperations_t)||/||TotalAssets_t|
|=||(78.114 - 6.583||-||129.733)||/||1020.175|
An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.
Morningstar Inc has a M-score of -2.63 suggests that the company will not be a manipulator.
Altman Z-Score, Piotroski F-Score, Accounts Receivable, Revenue, Gross Profit, Total Current Assets, Total Assets, Property, Plant and Equipment, Depreciation, Depletion and Amortization, Selling, General & Admin. Expense, Total Current Liabilities, Long-Term Debt, Net Income, Non Operating Income, Cash Flow from Operations
Morningstar Inc Annual Data
Morningstar Inc Quarterly Data