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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 2.40. The lowest was -2.22. And the median was -1.36.
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 * 1.2361||+||0.528 * 0.9972||+||0.404 * 0.8237||+||0.892 * 1.0855||+||0.115 * 1|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.7694||+||4.679 * 0.0556||-||0.327 * 1.2558|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $101.2 Mil.|
Revenue was 156.22 + 142.303 + 140.149 + 138.535 = $577.2 Mil.
Gross Profit was 156.22 + 142.303 + 140.149 + 138.323 = $577.0 Mil.
Total Current Assets was $20,514.9 Mil.
Total Assets was $21,084.3 Mil.
Property, Plant and Equipment(Net PPE) was $0.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.6 Mil.
Selling, General & Admin. Expense(SGA) was $74.7 Mil.
Total Current Liabilities was $333.5 Mil.
Long-Term Debt was $1,209.7 Mil.
Net Income was -36.963 + 193.59 + 39.657 + -29.145 = $167.1 Mil.
Non Operating Income was -143.39 + 111.697 + -65.432 + -143.422 = $-240.5 Mil.
Cash Flow from Operations was -408.233 + -609.108 + -203.056 + 456.25 = $-764.1 Mil.
|Accounts Receivable was $75.4 Mil.
Revenue was 137.457 + 137.974 + 145.325 + 110.999 = $531.8 Mil.
Gross Profit was 137.457 + 137.974 + 143.899 + 110.763 = $530.1 Mil.
Total Current Assets was $16,610.8 Mil.
Total Assets was $17,173.9 Mil.
Property, Plant and Equipment(Net PPE) was $0.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.7 Mil.
Selling, General & Admin. Expense(SGA) was $38.9 Mil.
Total Current Liabilities was $361.2 Mil.
Long-Term Debt was $639.7 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)|
|=||(101.154 / 577.207)||/||(75.39 / 531.755)|
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)|
|=||(142.303 / 531.755)||/||(156.22 / 577.207)|
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 - (20514.939 + 0) / 21084.309)||/||(1 - (16610.804 + 0) / 17173.862)|
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))|
|=||(1.674 / (1.674 + 0))||/||(1.616 / (1.616 + 0))|
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)|
|=||(74.728 / 577.207)||/||(38.907 / 531.755)|
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)|
|=||((1209.663 + 333.474) / 21084.309)||/||((639.731 + 361.206) / 17173.862)|
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|
|=||(167.139 - -240.547||-||-764.147)||/||21084.309|
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 -2.22 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