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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 -1.26. The lowest was -3.17. And the median was -2.50.
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 * 0.8496||+||0.528 * 0.9088||+||0.404 * 0.9602||+||0.892 * 1.0698||+||0.115 * 1.2599|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.7923||+||4.679 * -0.0662||-||0.327 * 1.177|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $1,181 Mil.|
Revenue was 1758.4 + 1910.8 + 1725.2 + 2311 = $7,705 Mil.
Gross Profit was 624.7 + 658.9 + 578.3 + 733.3 = $2,595 Mil.
Total Current Assets was $3,052 Mil.
Total Assets was $10,927 Mil.
Property, Plant and Equipment(Net PPE) was $991 Mil.
Depreciation, Depletion and Amortization(DDA) was $260 Mil.
Selling, General & Admin. Expense(SGA) was $1,516 Mil.
Total Current Liabilities was $1,669 Mil.
Long-Term Debt was $2,961 Mil.
Net Income was -186 + 161.5 + 118.6 + 158.2 = $252 Mil.
Non Operating Income was 0.3 + 0.2 + 7.6 + 3 = $11 Mil.
Cash Flow from Operations was 268.4 + 414.4 + 0.6 + 281.3 = $965 Mil.
|Accounts Receivable was $1,299 Mil.
Revenue was 1713.3 + 1963.7 + 1774.5 + 1750.9 = $7,202 Mil.
Gross Profit was 614.7 + 667.4 + 523.8 + 398.7 = $2,205 Mil.
Total Current Assets was $3,211 Mil.
Total Assets was $11,804 Mil.
Property, Plant and Equipment(Net PPE) was $848 Mil.
Depreciation, Depletion and Amortization(DDA) was $301 Mil.
Selling, General & Admin. Expense(SGA) was $1,789 Mil.
Total Current Liabilities was $1,678 Mil.
Long-Term Debt was $2,571 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)|
|=||(1180.9 / 7705.4)||/||(1299.2 / 7202.4)|
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)|
|=||(658.9 / 7202.4)||/||(624.7 / 7705.4)|
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 - (3052.4 + 990.8) / 10926.9)||/||(1 - (3211.3 + 848.4) / 11804.2)|
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))|
|=||(301.4 / (301.4 + 848.4))||/||(260.3 / (260.3 + 990.8))|
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)|
|=||(1516.1 / 7705.4)||/||(1788.7 / 7202.4)|
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)|
|=||((2960.7 + 1668.7) / 10926.9)||/||((2570.7 + 1678.4) / 11804.2)|
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|
|=||(252.3 - 11.1||-||964.7)||/||10926.9|
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 -2.92 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