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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 * 1.0918||+||0.528 * 1.056||+||0.404 * 1.0543||+||0.892 * 0.8444||+||0.115 * 0.8255|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0125||+||4.679 * 0.1002||-||0.327 * 1.0866|
|This Year (Apr16) TTM:||Last Year (Apr15) TTM:|
|Accounts Receivable was $437 Mil.|
Revenue was 5394 + 7303 + 5750 + 6211 = $24,658 Mil.
Gross Profit was 1177 + 1595 + 1262 + 1435 = $5,469 Mil.
Total Current Assets was $6,120 Mil.
Total Assets was $11,175 Mil.
Property, Plant and Equipment(Net PPE) was $2,520 Mil.
Depreciation, Depletion and Amortization(DDA) was $395 Mil.
Selling, General & Admin. Expense(SGA) was $6,679 Mil.
Total Current Liabilities was $4,594 Mil.
Long-Term Debt was $3,312 Mil.
Net Income was -471 + -580 + -454 + 208 = $-1,297 Mil.
Non Operating Income was 1 + -63 + 0 + -1 = $-63 Mil.
Cash Flow from Operations was -722 + -113 + -1222 + -297 = $-2,354 Mil.
|Accounts Receivable was $474 Mil.
Revenue was 5882 + 8099 + 7207 + 8013 = $29,201 Mil.
Gross Profit was 1518 + 1978 + 1601 + 1742 = $6,839 Mil.
Total Current Assets was $6,063 Mil.
Total Assets was $13,269 Mil.
Property, Plant and Equipment(Net PPE) was $4,351 Mil.
Depreciation, Depletion and Amortization(DDA) was $548 Mil.
Selling, General & Admin. Expense(SGA) was $7,812 Mil.
Total Current Liabilities was $5,559 Mil.
Long-Term Debt was $3,080 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)|
|=||(437 / 24658)||/||(474 / 29201)|
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)|
|=||(6839 / 29201)||/||(5469 / 24658)|
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 - (6120 + 2520) / 11175)||/||(1 - (6063 + 4351) / 13269)|
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))|
|=||(548 / (548 + 4351))||/||(395 / (395 + 2520))|
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)|
|=||(6679 / 24658)||/||(7812 / 29201)|
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)|
|=||((3312 + 4594) / 11175)||/||((3080 + 5559) / 13269)|
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|
|=||(-1297 - -63||-||-2354)||/||11175|
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 -2.06 signals that the company is likely to 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