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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.
Red Hat, Inc. has a M-score of -2.88 suggests that the company is not a manipulator.
During the past 13 years, the highest Beneish M-Score of Red Hat, Inc. was -2.09. The lowest was -4.52. And the median was -2.79.
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 * 1.0307||+||0.528 * 1.0007||+||0.404 * 0.9461||+||0.892 * 1.1549||+||0.115 * 1.0203|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9859||+||4.679 * -0.1168||-||0.327 * 1.0056|
|This Year (Feb14) TTM:||Last Year (Feb13) TTM:|
|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.
Net Income was 45.069 + 52.025 + 40.808 + 40.391 = $178 Mil.
Non Operating Income was 0.283 + -0.44 + 1.196 + -0.424 = $1 Mil.
Cash Flow from Operations was 184.682 + 95.154 + 118.929 + 141.815 = $541 Mil.
|Accounts Receivable was $303 Mil.
Revenue was 347.885 + 343.606 + 322.595 + 314.731 = $1,329 Mil.
Gross Profit was 294.28 + 290.488 + 274.737 + 268.712 = $1,128 Mil.
Total Current Assets was $1,369 Mil.
Total Assets was $2,814 Mil.
Property, Plant and Equipment(Net PPE) was $142 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General & Admin. Expense(SGA) was $661 Mil.
Total Current Liabilities was $986 Mil.
Long-Term Debt was $48 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)|
|=||(360.594 / 1534.615)||/||(302.942 / 1328.817)|
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)|
|=||(336.109 / 1328.817)||/||(339.861 / 1534.615)|
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 - (1571.182 + 173.917) / 3106.619)||/||(1 - (1368.749 + 141.586) / 2813.66)|
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))|
|=||(62.341 / (62.341 + 141.586))||/||(74.405 / (74.405 + 173.917))|
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)|
|=||(752.462 / 1534.615)||/||(660.887 / 1328.817)|
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)|
|=||((0 + 1148.086) / 3106.619)||/||((48.321 + 985.712) / 2813.66)|
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|
|=||(178.293 - 0.615||-||540.58)||/||3106.619|
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 -2.88 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