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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 -1.43. The lowest was -3.13. And the median was -2.54.
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 * 0.9587||+||0.528 * 0.9734||+||0.404 * 1.0028||+||0.892 * 1.0306||+||0.115 * 0.8614|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0418||+||4.679 * -0.0419||-||0.327 * 0.9556|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $764 Mil.|
Revenue was 1188.1 + 1210.7 + 1733.3 + 1575.5 = $5,708 Mil.
Gross Profit was 440.1 + 440.9 + 599.2 + 535.4 = $2,016 Mil.
Total Current Assets was $2,672 Mil.
Total Assets was $11,535 Mil.
Property, Plant and Equipment(Net PPE) was $539 Mil.
Depreciation, Depletion and Amortization(DDA) was $181 Mil.
Selling, General & Admin. Expense(SGA) was $1,160 Mil.
Total Current Liabilities was $1,471 Mil.
Long-Term Debt was $4,278 Mil.
Net Income was 131 + 141 + 142.8 + 107.4 = $522 Mil.
Non Operating Income was 209.5 + -67.4 + 1 + 0.9 = $144 Mil.
Cash Flow from Operations was 304.6 + 187.3 + 384.5 + -15 = $861 Mil.
|Accounts Receivable was $773 Mil.
Revenue was 1289 + 1112.8 + 1661.2 + 1475 = $5,538 Mil.
Gross Profit was 432.5 + 394.7 + 566.2 + 510.2 = $1,904 Mil.
Total Current Assets was $2,778 Mil.
Total Assets was $11,834 Mil.
Property, Plant and Equipment(Net PPE) was $540 Mil.
Depreciation, Depletion and Amortization(DDA) was $149 Mil.
Selling, General & Admin. Expense(SGA) was $1,080 Mil.
Total Current Liabilities was $1,487 Mil.
Long-Term Debt was $4,686 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)|
|=||(764 / 5707.6)||/||(773.2 / 5538)|
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)|
|=||(1903.6 / 5538)||/||(2015.6 / 5707.6)|
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 - (2672 + 538.6) / 11534.8)||/||(1 - (2777.6 + 539.8) / 11833.5)|
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))|
|=||(149.3 / (149.3 + 539.8))||/||(181 / (181 + 538.6))|
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)|
|=||(1159.5 / 5707.6)||/||(1079.9 / 5538)|
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)|
|=||((4278.4 + 1471.2) / 11534.8)||/||((4685.8 + 1486.5) / 11833.5)|
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|
|=||(522.2 - 144||-||861.4)||/||11534.8|
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 -2.71 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