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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 Sears Holdings Corp was 6.25. The lowest was -3.43. And the median was -2.65.
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 Sears Holdings Corp 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 * 0.8686||+||0.528 * 1.118||+||0.404 * 1.0223||+||0.892 * 0.9016||+||0.115 * 1.0896|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0102||+||4.679 * -0.0561||-||0.327 * 1.199|
|This Year (Oct16) TTM:||Last Year (Oct15) TTM:|
|Accounts Receivable was $372 Mil.|
Revenue was 5029 + 5663 + 5394 + 7303 = $23,389 Mil.
Gross Profit was 962 + 1260 + 1177 + 1595 = $4,994 Mil.
Total Current Assets was $5,966 Mil.
Total Assets was $10,865 Mil.
Property, Plant and Equipment(Net PPE) was $2,392 Mil.
Depreciation, Depletion and Amortization(DDA) was $370 Mil.
Selling, General & Admin. Expense(SGA) was $6,382 Mil.
Total Current Liabilities was $5,730 Mil.
Long-Term Debt was $3,087 Mil.
Net Income was -748 + -395 + -471 + -580 = $-2,194 Mil.
Non Operating Income was 0 + -1 + 1 + -63 = $-63 Mil.
Cash Flow from Operations was -768 + 82 + -722 + -113 = $-1,521 Mil.
|Accounts Receivable was $475 Mil.
Revenue was 5750 + 6211 + 5882 + 8099 = $25,942 Mil.
Gross Profit was 1262 + 1435 + 1518 + 1978 = $6,193 Mil.
Total Current Assets was $7,219 Mil.
Total Assets was $12,769 Mil.
Property, Plant and Equipment(Net PPE) was $2,668 Mil.
Depreciation, Depletion and Amortization(DDA) was $456 Mil.
Selling, General & Admin. Expense(SGA) was $7,007 Mil.
Total Current Liabilities was $6,518 Mil.
Long-Term Debt was $2,124 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)|
|=||(372 / 23389)||/||(475 / 25942)|
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)|
|=||(6193 / 25942)||/||(4994 / 23389)|
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 - (5966 + 2392) / 10865)||/||(1 - (7219 + 2668) / 12769)|
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))|
|=||(456 / (456 + 2668))||/||(370 / (370 + 2392))|
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)|
|=||(6382 / 23389)||/||(7007 / 25942)|
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)|
|=||((3087 + 5730) / 10865)||/||((2124 + 6518) / 12769)|
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|
|=||(-2194 - -63||-||-1521)||/||10865|
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.
Sears Holdings Corp 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
Sears Holdings Corp Annual Data
Sears Holdings Corp Quarterly Data