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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 8 years, the highest Beneish M-Score of Two Harbors Investment Corp was 15.18. The lowest was -3.15. And the median was -1.89.
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 Two Harbors Investment 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 * 1.2164||+||0.528 * 1||+||0.404 * 1.4395||+||0.892 * 1.1184||+||0.115 * 1.4641|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.2485||+||4.679 * 0.1392||-||0.327 * 5.2567|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $103.3 Mil.|
Revenue was 152.834 + 152.529 + 162.969 + 156.22 = $624.6 Mil.
Gross Profit was 152.834 + 152.529 + 162.969 + 156.22 = $624.6 Mil.
Total Current Assets was $16,479.0 Mil.
Total Assets was $17,785.3 Mil.
Property, Plant and Equipment(Net PPE) was $2.8 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.3 Mil.
Selling, General & Admin. Expense(SGA) was $71.4 Mil.
Total Current Liabilities was $255.3 Mil.
Long-Term Debt was $5,700.8 Mil.
Net Income was -34.79 + 221.501 + 94.793 + -36.963 = $244.5 Mil.
Non Operating Income was -119.524 + 133.94 + -7.1 + -143.39 = $-136.1 Mil.
Cash Flow from Operations was -584.287 + -526.502 + -513.416 + -471.233 = $-2,095.4 Mil.
|Accounts Receivable was $75.9 Mil.
Revenue was 142.303 + 140.149 + 138.535 + 137.457 = $558.4 Mil.
Gross Profit was 142.303 + 140.149 + 138.535 + 137.457 = $558.4 Mil.
Total Current Assets was $18,176.6 Mil.
Total Assets was $19,154.8 Mil.
Property, Plant and Equipment(Net PPE) was $2.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $2.6 Mil.
Selling, General & Admin. Expense(SGA) was $51.2 Mil.
Total Current Liabilities was $281.8 Mil.
Long-Term Debt was $938.5 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)|
|=||(103.319 / 624.552)||/||(75.946 / 558.444)|
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)|
|=||(152.529 / 558.444)||/||(152.834 / 624.552)|
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 - (16478.976 + 2.798) / 17785.313)||/||(1 - (18176.635 + 2.893) / 19154.825)|
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))|
|=||(2.551 / (2.551 + 2.893))||/||(1.317 / (1.317 + 2.798))|
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)|
|=||(71.447 / 624.552)||/||(51.17 / 558.444)|
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)|
|=||((5700.769 + 255.317) / 17785.313)||/||((938.506 + 281.794) / 19154.825)|
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|
|=||(244.541 - -136.074||-||-2095.438)||/||17785.313|
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.
Two Harbors Investment Corp has a M-score of -2.73 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
Two Harbors Investment Corp Annual Data
Two Harbors Investment Corp Quarterly Data