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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 13 years, the highest Beneish M-Score of Red Hat Inc was -1.76. The lowest was -5.01. And the median was -2.84.
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 Red Hat 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 * 0.9308||+||0.528 * 1.0001||+||0.404 * 0.9949||+||0.892 * 1.143||+||0.115 * 0.97|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0047||+||4.679 * -0.1287||-||0.327 * 1.4138|
|This Year (Aug15) TTM:||Last Year (Aug14) TTM:|
|Accounts Receivable was $302 Mil.|
Revenue was 504.148 + 481.001 + 463.941 + 455.895 = $1,905 Mil.
Gross Profit was 428.184 + 409.604 + 393.724 + 384.53 = $1,616 Mil.
Total Current Assets was $1,706 Mil.
Total Assets was $3,801 Mil.
Property, Plant and Equipment(Net PPE) was $165 Mil.
Depreciation, Depletion and Amortization(DDA) was $75 Mil.
Selling, General & Admin. Expense(SGA) was $951 Mil.
Total Current Liabilities was $1,262 Mil.
Long-Term Debt was $725 Mil.
Net Income was 51.395 + 48.086 + 47.7 + 47.933 = $195 Mil.
Non Operating Income was -1.245 + -0.203 + 4.785 + 1.559 = $5 Mil.
Cash Flow from Operations was 120.277 + 208.758 + 217.384 + 132.988 = $679 Mil.
|Accounts Receivable was $284 Mil.
Revenue was 445.899 + 423.754 + 400.397 + 396.536 = $1,667 Mil.
Gross Profit was 378.725 + 359.311 + 339.861 + 336.109 = $1,414 Mil.
Total Current Assets was $1,326 Mil.
Total Assets was $3,067 Mil.
Property, Plant and Equipment(Net PPE) was $176 Mil.
Depreciation, Depletion and Amortization(DDA) was $76 Mil.
Selling, General & Admin. Expense(SGA) was $828 Mil.
Total Current Liabilities was $1,134 Mil.
Long-Term Debt was $0 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)|
|=||(302.098 / 1904.985)||/||(283.952 / 1666.586)|
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)|
|=||(409.604 / 1666.586)||/||(428.184 / 1904.985)|
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 - (1705.961 + 164.718) / 3801.471)||/||(1 - (1325.564 + 175.844) / 3067.304)|
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))|
|=||(76.497 / (76.497 + 175.844))||/||(74.885 / (74.885 + 164.718))|
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)|
|=||(951.267 / 1904.985)||/||(828.357 / 1666.586)|
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)|
|=||((724.621 + 1262.399) / 3801.471)||/||((0 + 1134.009) / 3067.304)|
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|
|=||(195.114 - 4.896||-||679.407)||/||3801.471|
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.
Red Hat Inc has a M-score of -3.16 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
Red Hat Inc Annual Data
Red Hat Inc Quarterly Data