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GuruFocus has detected 2 Warning Signs with Red Hat Inc $RHT.
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Red Hat Inc (NYSE:RHT)
Beneish M-Score
-2.95 (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.

Red Hat Inc has a M-score of -2.95 suggests that the company is not a manipulator.

RHT' s Beneish M-Score Range Over the Past 10 Years
Min: -5.01   Max: -1.76
Current: -2.95

-5.01
-1.76

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.


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 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 * 0.914+0.528 * 0.9956+0.404 * 0.9865+0.892 * 1.1793+0.115 * 0.9964
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0295+4.679 * -0.1106-0.327 * 1.0468
=-2.95

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Nov16) TTM:Last Year (Nov15) TTM:
Accounts Receivable was $427 Mil.
Revenue was 615.26 + 599.805 + 567.899 + 543.502 = $2,326 Mil.
Gross Profit was 524.807 + 512.134 + 483.851 + 462.282 = $1,983 Mil.
Total Current Assets was $1,881 Mil.
Total Assets was $4,085 Mil.
Property, Plant and Equipment(Net PPE) was $174 Mil.
Depreciation, Depletion and Amortization(DDA) was $83 Mil.
Selling, General & Admin. Expense(SGA) was $1,206 Mil.
Total Current Liabilities was $1,498 Mil.
Long-Term Debt was $740 Mil.
Net Income was 67.943 + 58.772 + 61.184 + 53.036 = $241 Mil.
Non Operating Income was -1.392 + 0.084 + -0.553 + -0.337 = $-2 Mil.
Cash Flow from Operations was 136.359 + 96.802 + 232.297 + 229.466 = $695 Mil.
Accounts Receivable was $397 Mil.
Revenue was 523.58 + 504.148 + 481.001 + 463.941 = $1,973 Mil.
Gross Profit was 442.532 + 428.184 + 409.604 + 393.724 = $1,674 Mil.
Total Current Assets was $1,774 Mil.
Total Assets was $3,899 Mil.
Property, Plant and Equipment(Net PPE) was $161 Mil.
Depreciation, Depletion and Amortization(DDA) was $76 Mil.
Selling, General & Admin. Expense(SGA) was $993 Mil.
Total Current Liabilities was $1,312 Mil.
Long-Term Debt was $729 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)
=(427.436 / 2326.466) / (396.545 / 1972.67)
=0.18372759 / 0.20101943
=0.914

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)
=(1674.044 / 1972.67) / (1983.074 / 2326.466)
=0.84861837 / 0.85239759
=0.9956

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 - (1880.572 + 174.45) / 4085.093) / (1 - (1773.941 + 161.015) / 3899.205)
=0.49694609 / 0.50375628
=0.9865

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
=2326.466 / 1972.67
=1.1793

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))
=(76.092 / (76.092 + 161.015)) / (82.876 / (82.876 + 174.45))
=0.3209184 / 0.32206617
=0.9964

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)
=(1206.034 / 2326.466) / (993.296 / 1972.67)
=0.51839743 / 0.50352872
=1.0295

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)
=((740.153 + 1497.938) / 4085.093) / ((729.285 + 1311.534) / 3899.205)
=0.54786782 / 0.52339361
=1.0468

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
=(240.935 - -2.198 - 694.924) / 4085.093
=-0.1106

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 -2.95 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 local exchange's currency.

Red Hat Inc Annual Data

Feb07Feb08Feb09Feb10Feb11Feb12Feb13Feb14Feb15Feb16
DSRI 1.04851.10580.8120.94511.09031.10841.01231.03071.11310.9497
GMI 0.98490.99131.01010.98761.01570.99090.99221.00071.00130.9979
AQI 1.35910.95871.15110.93871.00361.1070.97980.94611.04241.1146
SGI 1.43941.30551.24771.14661.21521.24621.17271.15491.16611.1468
DEPI 0.9141.14620.87240.95491.00411.08461.17161.02030.9760.9804
SGAI 1.12850.98950.97420.9850.96510.99111.03710.98121.02391.0106
LVGI 0.83060.95660.54631.18841.02121.11291.01841.05491.45641.0209
TATA -0.1036-0.0898-0.0941-0.0956-0.084-0.0983-0.1122-0.1169-0.1187-0.1239
M-score -2.37-2.52-2.67-2.94-2.59-2.61-2.84-2.89-2.92-2.94

Red Hat Inc Quarterly Data

Aug14Nov14Feb15May15Aug15Nov15Feb16May16Aug16Nov16
DSRI 1.04560.98381.11310.92530.93080.97770.94970.991.01550.914
GMI 0.99851.00051.00131.00071.00010.99850.99790.99880.99740.9956
AQI 1.08371.10491.04240.9720.99491.07071.11460.99630.99880.9865
SGI 1.16611.16451.16611.15771.1431.1431.14681.15831.17311.1793
DEPI 0.97350.98960.9760.97790.970.95050.98040.97770.97850.9964
SGAI 1.00551.0181.02391.00211.00471.00791.01061.02471.03341.0295
LVGI 1.03781.4761.45641.41331.41380.98591.02091.03951.04691.0468
TATA -0.1209-0.1169-0.1187-0.13-0.1311-0.1317-0.1239-0.1261-0.1186-0.1106
M-score -2.84-3.01-2.92-3.17-3.17-2.96-2.94-2.96-2.89-2.95
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