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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 11 years, the highest Beneish M-Score of Rackspace Hosting Inc was -2.59. The lowest was -3.65. And the median was -3.27.
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 * 1.1173||+||0.528 * 0.9994||+||0.404 * 0.8439||+||0.892 * 1.1631||+||0.115 * 1.0021|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9588||+||4.679 * -0.2556||-||0.327 * 1.1594|
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|Accounts Receivable was $154 Mil.|
Revenue was 480.2 + 472.422 + 459.776 + 441.112 = $1,854 Mil.
Gross Profit was 318.9 + 318.51 + 316.822 + 296.061 = $1,250 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.
Net Income was 28.4 + 36.916 + 25.74 + 22.451 = $114 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 145.3 + 150.886 + 125.428 + 124.496 = $546 Mil.
|Accounts Receivable was $119 Mil.
Revenue was 421 + 408.103 + 388.636 + 375.847 = $1,594 Mil.
Gross Profit was 280.6 + 274.282 + 261.232 + 258.189 = $1,074 Mil.
Total Current Assets was $483 Mil.
Total Assets was $1,567 Mil.
Property, Plant and Equipment(Net PPE) was $925 Mil.
Depreciation, Depletion and Amortization(DDA) was $331 Mil.
Selling, General & Admin. Expense(SGA) was $517 Mil.
Total Current Liabilities was $279 Mil.
Long-Term Debt was $38 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)|
|=||(154 / 1853.51)||/||(118.507 / 1593.586)|
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)|
|=||(318.51 / 1593.586)||/||(318.9 / 1853.51)|
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 - (479.1 + 1068.8) / 1692.3)||/||(1 - (483.386 + 925.136) / 1566.949)|
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))|
|=||(330.696 / (330.696 + 925.136))||/||(380.984 / (380.984 + 1068.8))|
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)|
|=||(576.695 / 1853.51)||/||(517.146 / 1593.586)|
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)|
|=||((147.4 + 249.4) / 1692.3)||/||((37.58 + 279.323) / 1566.949)|
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|
|=||(113.507 - 0||-||546.11)||/||1692.3|
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 -3.53 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