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Rackspace Hosting, Inc. (NYSE:RAX)
Beneish M-Score
-3.27 (As of Today)

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.

Rackspace Hosting, Inc. has a M-score of -3.27 suggests that the company is not a manipulator.

RAX' s 10-Year Beneish M-Score Range
Min: -3.29   Max: -3.2
Current: -3.27

-3.29
-3.2

During the past 10 years, the highest Beneish M-Score of Rackspace Hosting, Inc. was -3.20. The lowest was -3.29. And the median was -3.24.


Definition

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 Rackspace Hosting, Inc. 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 * 1.1385+0.528 * 1.0012+0.404 * 0.9684+0.892 * 1.1723+0.115 * 0.9857
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.049+4.679 * -0.2395-0.327 * 0.7753
=-3.27

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

This Year (Dec13) TTM:Last Year (Dec12) TTM:
Accounts Receivable was $124 Mil.
Revenue was 408.103 + 388.636 + 375.847 + 362.2 = $1,535 Mil.
Gross Profit was 274.282 + 261.232 + 258.189 + 248.59 = $1,042 Mil.
Total Current Assets was $439 Mil.
Total Assets was $1,492 Mil.
Property, Plant and Equipment(Net PPE) was $891 Mil.
Depreciation, Depletion and Amortization(DDA) was $313 Mil.
Selling, General & Admin. Expense(SGA) was $498 Mil.
Total Current Liabilities was $259 Mil.
Long-Term Debt was $25 Mil.
Net Income was 20.798 + 16.311 + 22.367 + 27.261 = $87 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 109.518 + 114.55 + 106.199 + 113.793 = $444 Mil.
Accounts Receivable was $93 Mil.
Revenue was 352.909 + 335.985 + 318.99 + 301.355 = $1,309 Mil.
Gross Profit was 243.897 + 228.637 + 216.418 + 201.274 = $890 Mil.
Total Current Assets was $425 Mil.
Total Assets was $1,296 Mil.
Property, Plant and Equipment(Net PPE) was $725 Mil.
Depreciation, Depletion and Amortization(DDA) was $250 Mil.
Selling, General & Admin. Expense(SGA) was $405 Mil.
Total Current Liabilities was $255 Mil.
Long-Term Debt was $62 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in 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)
=(123.898 / 1534.786) / (92.834 / 1309.239)
=0.08072656 / 0.07090684
=1.1385

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)
=(261.232 / 1309.239) / (274.282 / 1534.786)
=0.67995683 / 0.67911292
=1.0012

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 plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (438.968 + 890.776) / 1491.797) / (1 - (425.245 + 724.985) / 1295.551)
=0.10862939 / 0.11216926
=0.9684

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=1534.786 / 1309.239
=1.1723

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))
=(249.845 / (249.845 + 724.985)) / (313.007 / (313.007 + 890.776))
=0.25629597 / 0.26001946
=0.9857

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)
=(497.979 / 1534.786) / (404.946 / 1309.239)
=0.32446152 / 0.30929876
=1.049

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)
=((25.172 + 258.508) / 1491.797) / ((62.326 + 255.439) / 1295.551)
=0.19015992 / 0.24527402
=0.7753

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
=(86.737 - 0 - 444.06) / 1491.797
=-0.2395

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.

Rackspace Hosting, Inc. has a M-score of -3.27 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Rackspace Hosting, Inc. Annual Data

Dec03Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 1.15660.90420.90851.00361.05791.1385
GMI 0.99680.99271.00090.97351.02721.0012
AQI 0.81441.46791.61421.24380.84890.9684
SGI 1.46941.18251.2411.31331.27721.1723
DEPI 0.99890.88880.9371.00820.92650.9857
SGAI 0.99470.91420.96091.02420.81021.0503
LVGI 0.88990.72430.82970.88730.81230.7753
TATA -0.1676-0.2492-0.2543-0.2416-0.227-0.2395
M-score -2.74-3.29-3.24-3.21-3.20-3.27

Rackspace Hosting, Inc. Quarterly Data

Sep11Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13
DSRI 0.9851.00361.02610.99231.19151.05791.00340.98621.00911.1385
GMI 0.97790.97350.99121.00931.01551.02721.00890.99810.99881.0012
AQI 2.26591.24381.24131.22560.8950.84890.94720.98280.95860.9684
SGI 1.30081.31331.31821.31011.29591.27721.24961.22151.19361.1723
DEPI 1.05521.00820.98550.9310.90580.92650.93190.95810.97520.9857
SGAI 1.03671.02420.95230.88120.82940.79840.84370.91390.98251.049
LVGI 0.81270.88730.84850.81480.87250.81230.82610.7510.7580.7753
TATA -0.2366-0.2416-0.2067-0.2232-0.2241-0.227-0.244-0.2417-0.2476-0.2395
M-score -2.77-3.21-2.99-3.09-3.06-3.20-3.34-3.34-3.40-3.27
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