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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 -3.04. The lowest was -3.76. And the median was -3.21.
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 * 0.9992||+||0.528 * 1.0197||+||0.404 * 0.8122||+||0.892 * 1.1153||+||0.115 * 1.0069|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.953||+||4.679 * -0.2271||-||0.327 * 1.8123|
|This Year (Dec15) TTM:||Last Year (Dec14) TTM:|
|Accounts Receivable was $174 Mil.|
Revenue was 522.8 + 508.9 + 489.4 + 480.2 = $2,001 Mil.
Gross Profit was 343.7 + 337.7 + 325.5 + 318.9 = $1,326 Mil.
Total Current Assets was $718 Mil.
Total Assets was $2,014 Mil.
Property, Plant and Equipment(Net PPE) was $1,148 Mil.
Depreciation, Depletion and Amortization(DDA) was $400 Mil.
Selling, General & Admin. Expense(SGA) was $595 Mil.
Total Current Liabilities was $237 Mil.
Long-Term Debt was $657 Mil.
Net Income was 32.1 + 36.5 + 29.2 + 28.4 = $126 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 204 + 111.4 + 122.9 + 145.3 = $584 Mil.
|Accounts Receivable was $157 Mil.
Revenue was 472.5 + 459.7 + 441.2 + 421 = $1,794 Mil.
Gross Profit was 318.6 + 316.8 + 296.1 + 280.6 = $1,212 Mil.
Total Current Assets was $412 Mil.
Total Assets was $1,616 Mil.
Property, Plant and Equipment(Net PPE) was $1,058 Mil.
Depreciation, Depletion and Amortization(DDA) was $372 Mil.
Selling, General & Admin. Expense(SGA) was $560 Mil.
Total Current Liabilities was $277 Mil.
Long-Term Debt was $119 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)|
|=||(174.4 / 2001.3)||/||(156.5 / 1794.4)|
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)|
|=||(337.7 / 1794.4)||/||(343.7 / 2001.3)|
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 - (718.4 + 1148) / 2014.2)||/||(1 - (412.4 + 1057.7) / 1616.1)|
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))|
|=||(371.9 / (371.9 + 1057.7))||/||(399.9 / (399.9 + 1148))|
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)|
|=||(594.9 / 2001.3)||/||(559.7 / 1794.4)|
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)|
|=||((656.9 + 236.9) / 2014.2)||/||((118.9 + 276.8) / 1616.1)|
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|
|=||(126.2 - 0||-||583.6)||/||2014.2|
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 -3.76 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