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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 -2.10. The lowest was -4.52. And the median was -2.78.
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 * 1.1131||+||0.528 * 1.0013||+||0.404 * 0.9963||+||0.892 * 1.1661||+||0.115 * 0.976|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0239||+||4.679 * -0.1181||-||0.327 * 1.4587|
|This Year (Feb15) TTM:||Last Year (Feb14) TTM:|
|Accounts Receivable was $468 Mil.|
Revenue was 463.941 + 455.895 + 445.899 + 423.754 = $1,789 Mil.
Gross Profit was 393.724 + 384.53 + 378.725 + 359.311 = $1,516 Mil.
Total Current Assets was $1,970 Mil.
Total Assets was $3,803 Mil.
Property, Plant and Equipment(Net PPE) was $172 Mil.
Depreciation, Depletion and Amortization(DDA) was $76 Mil.
Selling, General & Admin. Expense(SGA) was $898 Mil.
Total Current Liabilities was $1,335 Mil.
Long-Term Debt was $715 Mil.
Net Income was 47.7 + 47.933 + 46.823 + 37.745 = $180 Mil.
Non Operating Income was 4.785 + 1.559 + -0.289 + 0.357 = $6 Mil.
Cash Flow from Operations was 217.384 + 132.988 + 107.737 + 164.686 = $623 Mil.
|Accounts Receivable was $361 Mil.
Revenue was 400.397 + 396.536 + 374.423 + 363.259 = $1,535 Mil.
Gross Profit was 339.861 + 336.109 + 318.843 + 307.202 = $1,302 Mil.
Total Current Assets was $1,571 Mil.
Total Assets was $3,107 Mil.
Property, Plant and Equipment(Net PPE) was $174 Mil.
Depreciation, Depletion and Amortization(DDA) was $74 Mil.
Selling, General & Admin. Expense(SGA) was $752 Mil.
Total Current Liabilities was $1,148 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)|
|=||(468.021 / 1789.489)||/||(360.594 / 1534.615)|
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)|
|=||(384.53 / 1534.615)||/||(393.724 / 1789.489)|
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 - (1970.239 + 172.151) / 3802.985)||/||(1 - (1571.182 + 173.917) / 3106.619)|
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))|
|=||(74.405 / (74.405 + 173.917))||/||(76.263 / (76.263 + 172.151))|
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)|
|=||(898.44 / 1789.489)||/||(752.462 / 1534.615)|
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)|
|=||((715.402 + 1334.692) / 3802.985)||/||((0 + 1148.086) / 3106.619)|
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|
|=||(180.201 - 6.412||-||622.795)||/||3802.985|
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 -2.94 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