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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 -4.60. And the median was -2.82.
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 * 0.9838||+||0.528 * 1.0005||+||0.404 * 1.1049||+||0.892 * 1.1645||+||0.115 * 0.9896|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.018||+||4.679 * -0.1168||-||0.327 * 1.476|
|This Year (Nov14) TTM:||Last Year (Nov13) TTM:|
|Accounts Receivable was $355 Mil.|
Revenue was 455.895 + 445.899 + 423.754 + 400.397 = $1,726 Mil.
Gross Profit was 384.53 + 378.725 + 359.311 + 339.861 = $1,462 Mil.
Total Current Assets was $1,705 Mil.
Total Assets was $3,548 Mil.
Property, Plant and Equipment(Net PPE) was $174 Mil.
Depreciation, Depletion and Amortization(DDA) was $76 Mil.
Selling, General & Admin. Expense(SGA) was $862 Mil.
Total Current Liabilities was $1,173 Mil.
Long-Term Debt was $711 Mil.
Net Income was 47.933 + 46.823 + 37.745 + 45.068 = $178 Mil.
Non Operating Income was 1.559 + -0.289 + 0.357 + 0.168 = $2 Mil.
Cash Flow from Operations was 132.988 + 107.737 + 164.686 + 184.682 = $590 Mil.
|Accounts Receivable was $310 Mil.
Revenue was 396.536 + 374.423 + 363.259 + 347.885 = $1,482 Mil.
Gross Profit was 336.109 + 318.843 + 307.202 + 294.28 = $1,256 Mil.
Total Current Assets was $1,469 Mil.
Total Assets was $2,851 Mil.
Property, Plant and Equipment(Net PPE) was $169 Mil.
Depreciation, Depletion and Amortization(DDA) was $73 Mil.
Selling, General & Admin. Expense(SGA) was $727 Mil.
Total Current Liabilities was $1,026 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)|
|=||(354.87 / 1725.945)||/||(309.753 / 1482.103)|
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)|
|=||(378.725 / 1482.103)||/||(384.53 / 1725.945)|
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 - (1705.017 + 173.599) / 3547.871)||/||(1 - (1468.6 + 168.604) / 2851.368)|
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))|
|=||(72.894 / (72.894 + 168.604))||/||(76.193 / (76.193 + 173.599))|
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)|
|=||(862.279 / 1725.945)||/||(727.345 / 1482.103)|
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)|
|=||((710.844 + 1172.621) / 3547.871)||/||((0 + 1025.546) / 2851.368)|
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|
|=||(177.569 - 1.795||-||590.093)||/||3547.871|
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 -3.01 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