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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 -1.58. The lowest was -3.16. And the median was -2.67.
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 * 1.2118||+||0.528 * 0.9918||+||0.404 * 1.0772||+||0.892 * 0.806||+||0.115 * 0.8356|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.035||+||4.679 * 0.0971||-||0.327 * 1.0108|
|This Year (Jan16) TTM:||Last Year (Jan15) TTM:|
|Accounts Receivable was $419 Mil.|
Revenue was 7303 + 5750 + 6211 + 5882 = $25,146 Mil.
Gross Profit was 1595 + 1262 + 1435 + 1518 = $5,810 Mil.
Total Current Assets was $6,045 Mil.
Total Assets was $11,337 Mil.
Property, Plant and Equipment(Net PPE) was $2,631 Mil.
Depreciation, Depletion and Amortization(DDA) was $422 Mil.
Selling, General & Admin. Expense(SGA) was $6,857 Mil.
Total Current Liabilities was $5,438 Mil.
Long-Term Debt was $2,108 Mil.
Net Income was -580 + -454 + 208 + -303 = $-1,129 Mil.
Non Operating Income was -63 + 0 + -1 + 1 = $-63 Mil.
Cash Flow from Operations was -113 + -1222 + -297 + -535 = $-2,167 Mil.
|Accounts Receivable was $429 Mil.
Revenue was 8099 + 7207 + 8013 + 7879 = $31,198 Mil.
Gross Profit was 1978 + 1601 + 1742 + 1828 = $7,149 Mil.
Total Current Assets was $5,863 Mil.
Total Assets was $13,185 Mil.
Property, Plant and Equipment(Net PPE) was $4,449 Mil.
Depreciation, Depletion and Amortization(DDA) was $581 Mil.
Selling, General & Admin. Expense(SGA) was $8,220 Mil.
Total Current Liabilities was $5,595 Mil.
Long-Term Debt was $3,087 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)|
|=||(419 / 25146)||/||(429 / 31198)|
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)|
|=||(1262 / 31198)||/||(1595 / 25146)|
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 - (6045 + 2631) / 11337)||/||(1 - (5863 + 4449) / 13185)|
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))|
|=||(581 / (581 + 4449))||/||(422 / (422 + 2631))|
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)|
|=||(6857 / 25146)||/||(8220 / 31198)|
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)|
|=||((2108 + 5438) / 11337)||/||((3087 + 5595) / 13185)|
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|
|=||(-1129 - -63||-||-2167)||/||11337|
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 -2.01 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