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Beneish M-Score 0.42 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.
During the past 9 years, the highest Beneish M-Score of Two Harbors Investment Corp was 15.29. The lowest was -3.02. And the median was -1.60.
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 * 3.2606||+||0.528 * 1||+||0.404 * 2.6682||+||0.892 * 0.947||+||0.115 * 0.0183|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.084||+||4.679 * 0.1434||-||0.327 * 2.0743|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $287.9 Mil.|
Revenue was 130.763 + 133.605 + 152.834 + 152.529 = $569.7 Mil.
Gross Profit was 130.763 + 133.605 + 152.834 + 152.529 = $569.7 Mil.
Total Current Assets was $15,001.2 Mil.
Total Assets was $16,684.6 Mil.
Property, Plant and Equipment(Net PPE) was $2.7 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.4 Mil.
Selling, General & Admin. Expense(SGA) was $78.9 Mil.
Total Current Liabilities was $314.4 Mil.
Long-Term Debt was $6,809.6 Mil.
Net Income was -88.93 + 210.706 + -34.79 + 221.501 = $308.5 Mil.
Non Operating Income was -265.152 + 26.703 + -272.358 + -18.589 = $-529.4 Mil.
Cash Flow from Operations was -131.682 + -312.543 + -584.287 + -526.501 = $-1,555.0 Mil.
|Accounts Receivable was $93.2 Mil.
Revenue was 162.969 + 156.22 + 142.303 + 140.149 = $601.6 Mil.
Gross Profit was 162.969 + 156.22 + 142.303 + 140.149 = $601.6 Mil.
Total Current Assets was $20,646.4 Mil.
Total Assets was $21,678.1 Mil.
Property, Plant and Equipment(Net PPE) was $213.3 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.3 Mil.
Selling, General & Admin. Expense(SGA) was $76.8 Mil.
Total Current Liabilities was $3,061.8 Mil.
Long-Term Debt was $1,400.6 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)|
|=||(287.895 / 569.731)||/||(93.239 / 601.641)|
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)|
|=||(133.605 / 601.641)||/||(130.763 / 569.731)|
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 - (15001.227 + 2.678) / 16684.605)||/||(1 - (20646.368 + 213.256) / 21678.055)|
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))|
|=||(1.328 / (1.328 + 213.256))||/||(1.371 / (1.371 + 2.678))|
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)|
|=||(78.863 / 569.731)||/||(76.829 / 601.641)|
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)|
|=||((6809.627 + 314.435) / 16684.605)||/||((1400.571 + 3061.808) / 21678.055)|
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|
|=||(308.487 - -529.396||-||-1555.013)||/||16684.605|
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 0.42 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
Two Harbors Investment Corp Annual Data
Two Harbors Investment Corp Quarterly Data