Universal Insurance Holdings 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 Universal Insurance Holdings 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 * 0.2957 | + | 0.528 * 1 | + | 0.404 * 3.3268 | + | 0.892 * 1.1382 | + | 0.115 * 1 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9311 | + | 4.679 * -0.005003 | - | 0.327 * 0.8271 |
| = | -2.02 |
* 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 $296 Mil.
Revenue was 375.456 + 360.048 + 339.57 + 316.508 = $1,392 Mil.
Gross Profit was 375.456 + 360.048 + 339.57 + 316.508 = $1,392 Mil.
Total Current Assets was $788 Mil.
Total Assets was $2,317 Mil.
Property, Plant and Equipment(Net PPE) was $48 Mil.
Depreciation, Depletion and Amortization(DDA) was $0 Mil.
Selling, General, & Admin. Expense(SGA) was $96 Mil.
Total Current Liabilities was $233 Mil.
Long-Term Debt & Capital Lease Obligation was $102 Mil.
Net Income was 19.999 + -5.915 + 28.566 + 24.173 = $67 Mil.
Non Operating Income was 1.414 + 2.028 + 2.031 + 1.968 = $7 Mil.
Cash Flow from Operations was 0.34 + 69.231 + 51.657 + -50.257 = $71 Mil.
|
Total Receivables was $880 Mil.
Revenue was 330.36 + 312.81 + 292.006 + 287.482 = $1,223 Mil.
Gross Profit was 330.36 + 312.81 + 292.006 + 287.482 = $1,223 Mil.
Total Current Assets was $2,283 Mil.
Total Assets was $2,890 Mil.
Property, Plant and Equipment(Net PPE) was $51 Mil.
Depreciation, Depletion and Amortization(DDA) was $0 Mil.
Selling, General, & Admin. Expense(SGA) was $91 Mil.
Total Current Liabilities was $403 Mil.
Long-Term Debt & Capital Lease Obligation was $103 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) |
| = | (296.166 / 1391.582) | / | (879.952 / 1222.658) |
| = | 0.212827 | / | 0.719704 |
| | = | 0.2957 |
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) |
| = | (1222.658 / 1222.658) | / | (1391.582 / 1391.582) |
| = | 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 - (787.732 + 47.628) / 2316.561) | / | (1 - (2283.284 + 51.404) / 2890.154) |
| = | 0.639397 | / | 0.192193 |
| | = | 3.3268 |
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 |
| = | 1391.582 | / | 1222.658 |
| | = | 1.1382 |
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)) |
| = | (0 / (0 + 51.404)) | / | (0 / (0 + 47.628)) |
| = | 0 | / | 0 |
| | = | 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) |
| = | (96.055 / 1391.582) | / | (90.638 / 1222.658) |
| = | 0.069026 | / | 0.074132 |
| | = | 0.9311 |
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) |
| = | ((102.006 + 233.322) / 2316.561) | / | ((102.769 + 403.045) / 2890.154) |
| = | 0.144753 | / | 0.175013 |
| | = | 0.8271 |
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 |
| = | (66.823 - 7.441 | - | 70.971) | / | 2316.561 |
| | = | -0.005003 |
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.
Universal Insurance Holdings has a M-score of -2.02 suggests that the company is unlikely to be a manipulator.
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