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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 12 years, the highest Beneish M-Score of Rackspace Hosting Inc was -2.59. The lowest was -3.76. And the median was -3.40.
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 * 1.0087||+||0.528 * 1.0218||+||0.404 * 0.8384||+||0.892 * 1.1001||+||0.115 * 0.9829|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9435||+||4.679 * -0.2211||-||0.327 * 1.8865|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $171 Mil.|
Revenue was 518.1 + 522.8 + 508.9 + 489.4 = $2,039 Mil.
Gross Profit was 337.7 + 343.7 + 337.7 + 325.5 = $1,345 Mil.
Total Current Assets was $765 Mil.
Total Assets was $2,025 Mil.
Property, Plant and Equipment(Net PPE) was $1,115 Mil.
Depreciation, Depletion and Amortization(DDA) was $407 Mil.
Selling, General & Admin. Expense(SGA) was $599 Mil.
Total Current Liabilities was $241 Mil.
Long-Term Debt was $655 Mil.
Net Income was 48.8 + 32.1 + 36.5 + 29.2 = $147 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 156.2 + 204 + 111.4 + 122.9 = $595 Mil.
|Accounts Receivable was $154 Mil.
Revenue was 480.2 + 472.5 + 459.7 + 441.2 = $1,854 Mil.
Gross Profit was 317.4 + 318.6 + 316.8 + 296.1 = $1,249 Mil.
Total Current Assets was $479 Mil.
Total Assets was $1,692 Mil.
Property, Plant and Equipment(Net PPE) was $1,069 Mil.
Depreciation, Depletion and Amortization(DDA) was $381 Mil.
Selling, General & Admin. Expense(SGA) was $577 Mil.
Total Current Liabilities was $249 Mil.
Long-Term Debt was $147 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)|
|=||(170.9 / 2039.2)||/||(154 / 1853.6)|
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)|
|=||(343.7 / 1853.6)||/||(337.7 / 2039.2)|
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 - (765.3 + 1115.2) / 2025.4)||/||(1 - (479.1 + 1068.8) / 1692.3)|
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))|
|=||(381 / (381 + 1068.8))||/||(407 / (407 + 1115.2))|
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)|
|=||(598.7 / 2039.2)||/||(576.8 / 1853.6)|
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)|
|=||((654.5 + 241.4) / 2025.4)||/||((147.4 + 249.4) / 1692.3)|
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|
|=||(146.6 - 0||-||594.5)||/||2025.4|
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 -3.75 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
Rackspace Hosting Inc Annual Data
Rackspace Hosting Inc Quarterly Data