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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 Pentair PLC was -1.45. The lowest was -2.98. And the median was -2.52.
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 Pentair PLC 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 * 0.9496||+||0.528 * 0.9671||+||0.404 * 1.0053||+||0.892 * 0.9882||+||0.115 * 0.9932|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0061||+||4.679 * -0.0753||-||0.327 * 1.229|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $1,206 Mil.|
Revenue was 1802.5 + 1758.4 + 1910.8 + 1725.2 = $7,197 Mil.
Gross Profit was 627.9 + 624.7 + 658.9 + 578.3 = $2,490 Mil.
Total Current Assets was $2,894 Mil.
Total Assets was $10,655 Mil.
Property, Plant and Equipment(Net PPE) was $950 Mil.
Depreciation, Depletion and Amortization(DDA) was $253 Mil.
Selling, General & Admin. Expense(SGA) was $1,520 Mil.
Total Current Liabilities was $1,640 Mil.
Long-Term Debt was $2,997 Mil.
Net Income was 120.8 + -186 + 161.5 + 118.6 = $215 Mil.
Non Operating Income was 0.3 + 0.3 + 0.2 + 7.6 = $8 Mil.
Cash Flow from Operations was 325 + 268.4 + 414.4 + 0.6 = $1,008 Mil.
|Accounts Receivable was $1,285 Mil.
Revenue was 1831 + 1713.3 + 1963.7 + 1774.5 = $7,283 Mil.
Gross Profit was 630.5 + 614.7 + 667.4 + 523.8 = $2,436 Mil.
Total Current Assets was $3,232 Mil.
Total Assets was $11,743 Mil.
Property, Plant and Equipment(Net PPE) was $1,044 Mil.
Depreciation, Depletion and Amortization(DDA) was $275 Mil.
Selling, General & Admin. Expense(SGA) was $1,529 Mil.
Total Current Liabilities was $1,610 Mil.
Long-Term Debt was $2,548 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)|
|=||(1205.9 / 7196.9)||/||(1285 / 7282.5)|
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)|
|=||(624.7 / 7282.5)||/||(627.9 / 7196.9)|
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 - (2894.1 + 950) / 10655.2)||/||(1 - (3232.1 + 1044.3) / 11743.3)|
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))|
|=||(275.4 / (275.4 + 1044.3))||/||(252.7 / (252.7 + 950))|
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)|
|=||(1520.3 / 7196.9)||/||(1529 / 7282.5)|
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)|
|=||((2997.4 + 1639.5) / 10655.2)||/||((2547.9 + 1610.2) / 11743.3)|
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|
|=||(214.9 - 8.4||-||1008.4)||/||10655.2|
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.
Pentair PLC has a M-score of -2.98 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
Pentair PLC Annual Data
Pentair PLC Quarterly Data