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Rackspace Hosting Inc (NYSE:RAX)
Beneish M-Score
-3.65 (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 -3.65 suggests that the company is not a manipulator.

RAX' s 10-Year Beneish M-Score Range
Min: -3.65   Max: -3.12
Current: -3.65

-3.65
-3.12

During the past 11 years, the highest Beneish M-Score of Rackspace Hosting Inc was -3.12. The lowest was -3.65. And the median was -3.18.


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 * 1.0801+0.528 * 1.0054+0.404 * 0.821+0.892 * 1.1691+0.115 * 0.9995
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9461+4.679 * -0.2659-0.327 * 1.281
=-3.65

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

This Year (Dec14) TTM:Last Year (Dec13) TTM:
Accounts Receivable was $156 Mil.
Revenue was 472.422 + 459.776 + 441.112 + 421.047 = $1,794 Mil.
Gross Profit was 318.51 + 316.822 + 296.061 + 280.63 = $1,212 Mil.
Total Current Assets was $422 Mil.
Total Assets was $1,624 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.
Net Income was 36.916 + 25.74 + 22.451 + 25.446 = $111 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 150.886 + 125.428 + 124.537 + 141.659 = $543 Mil.
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 $506 Mil.
Total Current Liabilities was $259 Mil.
Long-Term Debt was $25 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)
=(156.455 / 1794.357) / (123.898 / 1534.786)
=0.08719279 / 0.08072656
=1.0801

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)
=(316.822 / 1534.786) / (318.51 / 1794.357)
=0.67911292 / 0.67546369
=1.0054

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 - (421.743 + 1057.684) / 1624.284) / (1 - (438.968 + 890.776) / 1491.797)
=0.08918206 / 0.10862939
=0.821

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
=1794.357 / 1534.786
=1.1691

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))
=(313.007 / (313.007 + 890.776)) / (371.884 / (371.884 + 1057.684))
=0.26001946 / 0.26013733
=0.9995

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)
=(559.604 / 1794.357) / (505.937 / 1534.786)
=0.31186882 / 0.32964661
=0.9461

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)
=((118.937 + 276.718) / 1624.284) / ((25.172 + 258.508) / 1491.797)
=0.24358733 / 0.19015992
=1.281

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
=(110.553 - 0 - 542.51) / 1624.284
=-0.2659

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 -3.65 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

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
DSRI 0.82721.0590.99311.09611.05791.13851.0801
GMI 0.99680.99271.00090.97351.02721.00121.0054
AQI 0.81441.46791.61421.24380.84890.96840.821
SGI 1.46941.18251.2411.31331.27721.17231.1691
DEPI 0.99890.88880.9371.00820.92650.98570.9995
SGAI 0.99470.91420.96091.02420.81021.05030.9461
LVGI 0.88990.72430.82970.88730.81230.77531.281
TATA -0.1676-0.2492-0.2543-0.2416-0.227-0.2395-0.2659
M-score -3.04-3.15-3.16-3.12-3.20-3.27-3.65

Rackspace Hosting Inc Quarterly Data

Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14
DSRI 1.19151.05791.00340.98621.00911.13851.0541.09761.01351.0801
GMI 1.01551.02721.00890.99810.99881.00121.01511.02361.01321.0054
AQI 0.8950.84890.94720.98280.95860.96840.85470.83050.83240.821
SGI 1.29591.27721.24961.22151.19361.17231.16321.16261.16931.1691
DEPI 0.90580.92650.93190.95810.97520.98570.97110.97750.97210.9995
SGAI 0.82940.79840.85250.93020.9991.06581.04211.01030.98450.9461
LVGI 0.87250.81230.82610.7510.7580.77530.84820.96981.00481.281
TATA -0.2241-0.227-0.244-0.2417-0.2476-0.2395-0.247-0.2459-0.2358-0.2659
M-score -3.06-3.20-3.34-3.35-3.40-3.27-3.45-3.45-3.48-3.65
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