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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.
Rackspace Hosting Inc has a M-score of -3.27 suggests that the company is not a manipulator.
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.
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|
|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
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)|
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)|
|=||(261.232 / 1309.239)||/||(274.282 / 1534.786)|
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 - (438.968 + 890.776) / 1491.797)||/||(1 - (425.245 + 724.985) / 1295.551)|
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))|
|=||(249.845 / (249.845 + 724.985))||/||(313.007 / (313.007 + 890.776))|
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)|
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)|
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|
|=||(86.737 - 0||-||444.06)||/||1491.797|
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.
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