Annaly Capital Management Beneish M-Score Calculation
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Altman Z-Score) or business trend (Piotroski 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 Annaly Capital Management 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 * | + | 0.528 * | + | 0.404 * | + | 0.892 * | + | 0.115 * |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * | + | 4.679 * | - | 0.327 * |
| = | |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
| This Year (Dec23) TTM: | Last Year (Dec22) TTM: |
Total Receivables was $3,932.93 Mil.
Revenue was -350.599 + -516.783 + 218.379 + -803.184 = $-1,452.19 Mil.
Gross Profit was -350.599 + -516.783 + 218.379 + -803.184 = $-1,452.19 Mil.
Total Current Assets was $4,208.78 Mil.
Total Assets was $93,227.24 Mil.
Property, Plant and Equipment(Net PPE) was $0.00 Mil.
Depreciation, Depletion and Amortization(DDA) was $24.81 Mil.
Selling, General, & Admin. Expense(SGA) was $162.55 Mil.
Total Current Liabilities was $4,362.38 Mil.
Long-Term Debt & Capital Lease Obligation was $12,704.17 Mil.
Net Income was -403.743 + -562.205 + 167.033 + -844.256 = $-1,643.17 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.00 Mil.
Cash Flow from Operations was 378.522 + 1871.014 + 1136.639 + -1018.972 = $2,367.20 Mil.
|
Total Receivables was $1,212.39 Mil.
Revenue was -823.624 + -239.043 + 919.817 + 2094.11 = $1,951.26 Mil.
Gross Profit was -823.624 + -239.043 + 919.817 + 2094.11 = $1,951.26 Mil.
Total Current Assets was $1,364.95 Mil.
Total Assets was $81,850.71 Mil.
Property, Plant and Equipment(Net PPE) was $0.00 Mil.
Depreciation, Depletion and Amortization(DDA) was $20.51 Mil.
Selling, General, & Admin. Expense(SGA) was $162.73 Mil.
Total Current Liabilities was $2,145.24 Mil.
Long-Term Debt & Capital Lease Obligation was $8,545.01 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total Receivables in year t to year t-1.
A large increase in DSR could be indicative of revenue inflation.
| DSRI | = | (Receivables_t / Revenue_t) | / | (Receivables_t-1 / Revenue_t-1) |
| = | (3932.929 / -1452.187) | / | (1212.392 / 1951.26) |
| = | | / | 0.621338 |
| | = | |
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.
| GMI | = | GrossMargin_t-1 | / | GrossMargin_t |
| = | (GrossProfit_t-1 / Revenue_t-1) | / | (GrossProfit_t / Revenue_t) |
| = | (1951.26 / 1951.26) | / | (-1452.187 / -1452.187) |
| = | 1 | / | |
| | = | |
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
Asset quality is measured as the ratio of non-current assets other than Property, Plant and Equipment to Total Assets.
| AQI | = | (1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) | / | (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1) |
| = | (1 - (4208.779 + 0) / 93227.236) | / | (1 - (1364.946 + 0) / 81850.712) |
| = | 0.954855 | / | 0.983324 |
| | = | |
4. SGI = Sales Growth Index
Ratio of Revenue 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.
| SGI | = | Sales_t | / | Sales_t-1 |
| = | Revenue_t | / | Revenue_t-1 |
| = | -1452.187 | / | 1951.26 |
| | = | |
5. DEPI = Depreciation Index
Measured as the ratio of the rate of Depreciation, Depletion and Amortization 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)) |
| = | (20.506 / (20.506 + 0)) | / | (24.806 / (24.806 + 0)) |
| = | 1 | / | 1 |
| | = | |
Note: If the Depreciation, Depletion and Amortization data is not available, we assume that the depreciation rate is constant and set the Depreciation Index to 1.
6. SGAI = Sales, General and Administrative expenses Index
The ratio of Selling, General, & Admin. Expense(SGA) to Sales 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) |
| = | (162.553 / -1452.187) | / | (162.729 / 1951.26) |
| = | | / | 0.083397 |
| | = | |
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 in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((12704.173 + 4362.378) / 93227.236) | / | ((8545.009 + 2145.239) / 81850.712) |
| = | 0.183064 | / | 0.130607 |
| | = | |
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
| TATA | = | (IncomefromContinuingOperations_t | - | CashFlowsfromOperations_t) | / | TotalAssets_t |
| = | (NetIncome_t - NonOperatingIncome_t | - | CashFlowsfromOperations_t) | / | TotalAssets_t |
| = | (-1643.171 - 0 | - | 2367.203) | / | 93227.236 |
| | = | -0.043017 |
An M-Score of equal or less than -1.78 suggests that the company is unlikely to be a manipulator. An M-Score of greater than -1.78 signals that the company is likely to be a manipulator.
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