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GuruFocus has detected 3 Warning Signs with Red Hat Inc $RHT.
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Red Hat Inc (NYSE:RHT)
Beneish M-Score
-2.89 (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 -2.89 suggests that the company is not a manipulator.

RHT' s Beneish M-Score Range Over the Past 10 Years
Min: -5.01   Max: -2.1
Current: -2.89

-5.01
-2.1

During the past 13 years, the highest Beneish M-Score of Red Hat Inc was -2.10. The lowest was -5.01. And the median was -2.78.


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 * 1.0598+0.528 * 0.9954+0.404 * 0.879+0.892 * 1.1752+0.115 * 1.0092
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.017+4.679 * -0.1164-0.327 * 1.0581
=-2.89

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

This Year (Feb17) TTM:Last Year (Feb16) TTM:
Accounts Receivable was $635 Mil.
Revenue was 628.84 + 615.26 + 599.805 + 567.899 = $2,412 Mil.
Gross Profit was 536.633 + 524.807 + 512.134 + 483.851 = $2,057 Mil.
Total Current Assets was $2,316 Mil.
Total Assets was $4,535 Mil.
Property, Plant and Equipment(Net PPE) was $190 Mil.
Depreciation, Depletion and Amortization(DDA) was $85 Mil.
Selling, General & Admin. Expense(SGA) was $1,245 Mil.
Total Current Liabilities was $1,891 Mil.
Long-Term Debt was $746 Mil.
Net Income was 65.803 + 67.943 + 58.772 + 61.184 = $254 Mil.
Non Operating Income was -0.304 + -1.392 + 0.084 + -0.553 = $-2 Mil.
Cash Flow from Operations was 318.259 + 136.359 + 96.802 + 232.297 = $784 Mil.
Accounts Receivable was $510 Mil.
Revenue was 543.502 + 523.58 + 504.148 + 481.001 = $2,052 Mil.
Gross Profit was 462.282 + 442.532 + 428.184 + 409.604 = $1,743 Mil.
Total Current Assets was $1,872 Mil.
Total Assets was $4,155 Mil.
Property, Plant and Equipment(Net PPE) was $167 Mil.
Depreciation, Depletion and Amortization(DDA) was $76 Mil.
Selling, General & Admin. Expense(SGA) was $1,041 Mil.
Total Current Liabilities was $1,559 Mil.
Long-Term Debt was $724 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)
=(634.821 / 2411.804) / (509.715 / 2052.231)
=0.26321417 / 0.24837116
=1.0598

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)
=(1742.602 / 2052.231) / (2057.425 / 2411.804)
=0.84912566 / 0.85306476
=0.9954

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 - (2315.702 + 189.629) / 4535.185) / (1 - (1872.433 + 166.886) / 4155.099)
=0.4475791 / 0.50920086
=0.879

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
=2411.804 / 2052.231
=1.1752

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))
=(76.087 / (76.087 + 166.886)) / (85.309 / (85.309 + 189.629))
=0.31315002 / 0.3102845
=1.0092

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)
=(1244.512 / 2411.804) / (1041.23 / 2052.231)
=0.51600876 / 0.50736491
=1.017

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)
=((745.633 + 1891.073) / 4535.185) / ((723.942 + 1559.177) / 4155.099)
=0.58138885 / 0.54947403
=1.0581

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
=(253.702 - -2.165 - 783.717) / 4535.185
=-0.1164

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 -2.89 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

Feb08Feb09Feb10Feb11Feb12Feb13Feb14Feb15Feb16Feb17
DSRI 1.10580.8120.94511.09031.10841.01231.03071.11310.94971.0598
GMI 0.99131.01010.98761.01570.99090.99221.00071.00130.99790.9954
AQI 0.95871.15110.93871.00361.1070.97980.94611.04241.11460.879
SGI 1.30551.24771.14661.21521.24621.17271.15491.16611.14681.1752
DEPI 1.14620.87240.95491.00411.08461.17161.02030.9760.98041.0092
SGAI 0.98950.97420.9850.96510.99111.03710.98121.02391.01061.017
LVGI 0.95660.54631.18841.02121.11291.01841.05491.45641.02091.0581
TATA -0.0898-0.0941-0.0956-0.084-0.0983-0.1122-0.1169-0.1202-0.1288-0.1164
M-score -2.52-2.67-2.94-2.59-2.61-2.84-2.89-2.93-2.96-2.89

Red Hat Inc Quarterly Data

Nov14Feb15May15Aug15Nov15Feb16May16Aug16Nov16Feb17
DSRI 0.98381.11310.92530.93080.97770.94970.991.01550.9141.0598
GMI 1.00051.00131.00071.00010.99850.99790.99880.99740.99560.9954
AQI 1.10491.04240.9720.99491.07071.11460.99630.99880.98650.879
SGI 1.16451.16611.15771.1431.1431.14681.15831.17311.17931.1752
DEPI 0.98960.9760.97790.970.95050.98040.97770.97850.99641.0092
SGAI 1.0181.02391.00211.00471.00791.01061.02471.03341.02951.017
LVGI 1.4761.45641.41331.41380.98591.02091.03951.04691.04681.0581
TATA -0.1169-0.1202-0.1315-0.1326-0.1331-0.1288-0.131-0.1235-0.1155-0.1164
M-score -3.01-2.93-3.17-3.18-2.97-2.96-2.98-2.91-2.97-2.89
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