HCI Group 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 HCI Group 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 * 0.6518 | + | 0.528 * 1 | + | 0.404 * 0.9934 | + | 0.892 * 1.1179 | + | 0.115 * 1.4106 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.8527 | + | 4.679 * -0.08516 | - | 0.327 * 0.9806 |
| = | -3.02 |
* 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 $547.8 Mil.
Revenue was 162.657 + 131.538 + 127.338 + 128.476 = $550.0 Mil.
Gross Profit was 162.657 + 131.538 + 127.338 + 128.476 = $550.0 Mil.
Total Current Assets was $0.0 Mil.
Total Assets was $1,811.3 Mil.
Property, Plant and Equipment(Net PPE) was $31.5 Mil.
Depreciation, Depletion and Amortization(DDA) was $8.2 Mil.
Selling, General, & Admin. Expense(SGA) was $53.9 Mil.
Total Current Liabilities was $0.0 Mil.
Long-Term Debt & Capital Lease Obligation was $208.5 Mil.
Net Income was 38.096 + 13.157 + 12.443 + 15.338 = $79.0 Mil.
Non Operating Income was 0.242 + 0.26 + 0.841 + 1.285 = $2.6 Mil.
Cash Flow from Operations was 153.337 + 71.377 + -93.165 + 99.109 = $230.7 Mil.
|
Total Receivables was $751.7 Mil.
Revenue was 115.927 + 125.389 + 125.399 + 125.273 = $492.0 Mil.
Gross Profit was 115.927 + 125.389 + 125.399 + 125.273 = $492.0 Mil.
Total Current Assets was $0.0 Mil.
Total Assets was $1,803.3 Mil.
Property, Plant and Equipment(Net PPE) was $19.5 Mil.
Depreciation, Depletion and Amortization(DDA) was $8.0 Mil.
Selling, General, & Admin. Expense(SGA) was $56.5 Mil.
Total Current Liabilities was $0.0 Mil.
Long-Term Debt & Capital Lease Obligation was $211.7 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) |
| = | (547.795 / 550.009) | / | (751.736 / 491.988) |
| = | 0.995975 | / | 1.527956 |
| | = | 0.6518 |
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) |
| = | (491.988 / 491.988) | / | (550.009 / 550.009) |
| = | 1 | / | 1 |
| | = | 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 - (0 + 31.491) / 1811.316) | / | (1 - (0 + 19.519) / 1803.328) |
| = | 0.982614 | / | 0.989176 |
| | = | 0.9934 |
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 |
| = | 550.009 | / | 491.988 |
| | = | 1.1179 |
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)) |
| = | (8.01 / (8.01 + 19.519)) | / | (8.184 / (8.184 + 31.491)) |
| = | 0.290966 | / | 0.206276 |
| | = | 1.4106 |
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) |
| = | (53.868 / 550.009) | / | (56.511 / 491.988) |
| = | 0.09794 | / | 0.114863 |
| | = | 0.8527 |
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) |
| = | ((208.493 + 0) / 1811.316) | / | ((211.674 + 0) / 1803.328) |
| = | 0.115106 | / | 0.11738 |
| | = | 0.9806 |
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 |
| = | (79.034 - 2.628 | - | 230.658) | / | 1811.316 |
| | = | -0.08516 |
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.
HCI Group has a M-score of -3.02 suggests that the company is unlikely to be a manipulator.
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