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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 -3.16. And the median was -2.53.
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 * 0.4805||+||0.528 * 1.0213||+||0.404 * 1.0355||+||0.892 * 1.2627||+||0.115 * 0.4378|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9948||+||4.679 * -0.0882||-||0.327 * 0.9543|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $690 Mil.|
Revenue was 1210.7 + 1733.3 + 1575.5 + 3121.6 = $7,641 Mil.
Gross Profit was 440.9 + 599.2 + 535.4 + 1019.5 = $2,595 Mil.
Total Current Assets was $2,747 Mil.
Total Assets was $11,679 Mil.
Property, Plant and Equipment(Net PPE) was $547 Mil.
Depreciation, Depletion and Amortization(DDA) was $294 Mil.
Selling, General & Admin. Expense(SGA) was $1,593 Mil.
Total Current Liabilities was $1,288 Mil.
Long-Term Debt was $4,411 Mil.
Net Income was 141 + 142.8 + 107.4 + -453.3 = $-62 Mil.
Non Operating Income was -67.4 + 1 + 0.9 + 133.3 = $68 Mil.
Cash Flow from Operations was 187.3 + 384.5 + -15 + 343.4 = $900 Mil.
|Accounts Receivable was $1,137 Mil.
Revenue was 1112.8 + 1661.2 + 1475 + 1802.5 = $6,052 Mil.
Gross Profit was 394.7 + 566.2 + 510.2 + 627.9 = $2,099 Mil.
Total Current Assets was $2,964 Mil.
Total Assets was $12,671 Mil.
Property, Plant and Equipment(Net PPE) was $921 Mil.
Depreciation, Depletion and Amortization(DDA) was $167 Mil.
Selling, General & Admin. Expense(SGA) was $1,268 Mil.
Total Current Liabilities was $1,496 Mil.
Long-Term Debt was $4,983 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)|
|=||(689.5 / 7641.1)||/||(1136.5 / 6051.5)|
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)|
|=||(2099 / 6051.5)||/||(2595 / 7641.1)|
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 - (2747 + 547.3) / 11679)||/||(1 - (2964.2 + 921.4) / 12670.9)|
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))|
|=||(166.5 / (166.5 + 921.4))||/||(294.2 / (294.2 + 547.3))|
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)|
|=||(1593.1 / 7641.1)||/||(1268.3 / 6051.5)|
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)|
|=||((4411.3 + 1288.1) / 11679)||/||((4983.2 + 1496.2) / 12670.9)|
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|
|=||(-62.1 - 67.8||-||900.2)||/||11679|
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 -3.16 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