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GuruFocus has detected 3 Warning Signs with Tesaro Inc $TSRO.
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Tesaro Inc (NAS:TSRO)
Beneish M-Score
121.04 (As of Today)

Warning Sign:

Beneish M-Score 121.04 higher than -2.22, which implies that it might have manipulated its financial results.

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.

Tesaro Inc has a M-score of 121.04 signals that the company is a manipulator.

TSRO' s Beneish M-Score Range Over the Past 10 Years
Min: 121.04   Max: 121.04
Current: 121.04

During the past 6 years, the highest Beneish M-Score of Tesaro Inc was 121.04. The lowest was 121.04. And the median was 121.04.


Definition

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 Tesaro 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 * 0.0557+0.528 * 0.1661+0.404 * 0.3487+0.892 * 141.3975+0.115 * 0.8514
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.0142+4.679 * -0.1061-0.327 * 0.3773
=121.04

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $5.34 Mil.
Revenue was 4.225 + 3.73 + 36.561 + 0.307 = $44.82 Mil.
Gross Profit was 3.243 + 2.842 + 35.86 + -0.233 = $41.71 Mil.
Total Current Assets was $814.84 Mil.
Total Assets was $839.85 Mil.
Property, Plant and Equipment(Net PPE) was $6.64 Mil.
Depreciation, Depletion and Amortization(DDA) was $3.11 Mil.
Selling, General & Admin. Expense(SGA) was $158.45 Mil.
Total Current Liabilities was $76.77 Mil.
Long-Term Debt was $131.78 Mil.
Net Income was -136.942 + -101.153 + -58.407 + -90.767 = $-387.27 Mil.
Non Operating Income was -10.45 + 0 + 0 + 0 = $-10.45 Mil.
Cash Flow from Operations was -83.175 + -94.567 + -42.313 + -67.616 = $-287.67 Mil.
Accounts Receivable was $0.68 Mil.
Revenue was 0.23 + 0.087 + 0 + 0 = $0.32 Mil.
Gross Profit was -0.038 + 0.087 + 0 + 0 = $0.05 Mil.
Total Current Assets was $236.49 Mil.
Total Assets was $255.28 Mil.
Property, Plant and Equipment(Net PPE) was $2.78 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.04 Mil.
Selling, General & Admin. Expense(SGA) was $78.70 Mil.
Total Current Liabilities was $46.68 Mil.
Long-Term Debt was $121.33 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(5.343 / 44.823) / (0.679 / 0.317)
=0.1192022 / 2.14195584
=0.0557

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(0.049 / 0.317) / (41.712 / 44.823)
=0.15457413 / 0.93059367
=0.1661

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (814.839 + 6.64) / 839.845) / (1 - (236.491 + 2.779) / 255.281)
=0.02186832 / 0.06271912
=0.3487

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=44.823 / 0.317
=141.3975

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))
=(1.037 / (1.037 + 2.779)) / (3.113 / (3.113 + 6.64))
=0.27175052 / 0.31918384
=0.8514

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)
=(158.452 / 44.823) / (78.701 / 0.317)
=3.53506013 / 248.2681388
=0.0142

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)
=((131.775 + 76.773) / 839.845) / ((121.325 + 46.681) / 255.281)
=0.24831725 / 0.65812183
=0.3773

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(-387.269 - -10.45 - -287.671) / 839.845
=-0.1061

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.

Tesaro Inc has a M-score of 121.04 signals that the company is likely to be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Tesaro Inc Annual Data

Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.0557
GMI 0.1661
AQI 0.3487
SGI 141.3975
DEPI 0.8514
SGAI 0.0143
LVGI 0.3773
TATA -0.1064
M-score 121.04

Tesaro Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.00620.0557
GMI 1.06240.1661
AQI 1.89890.3487
SGI 469.2874141.3975
DEPI 0.40060.8514
SGAI 0.00480.0142
LVGI 0.51860.3773
TATA -0.0771-0.1061
M-score 414.61121.04
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