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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 10 years, the highest Beneish M-Score of Two Harbors Investment Corp was 2.40. The lowest was -2.31. And the median was -1.59.
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 * 1.7417||+||0.528 * 1||+||0.404 * 1.1679||+||0.892 * 1.0524||+||0.115 * 0.837|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9049||+||4.679 * 0.0319||-||0.327 * 0.8957|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $123.1 Mil.|
Revenue was 179.089 + 168.862 + 154.776 + 130.763 = $633.5 Mil.
Gross Profit was 179.089 + 168.862 + 154.776 + 130.763 = $633.5 Mil.
Total Current Assets was $17,378.6 Mil.
Total Assets was $20,112.1 Mil.
Property, Plant and Equipment(Net PPE) was $1.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.3 Mil.
Selling, General & Admin. Expense(SGA) was $54.3 Mil.
Total Current Liabilities was $277.8 Mil.
Long-Term Debt was $7,037.2 Mil.
Net Income was 341.403 + 117.786 + -16.981 + -88.93 = $353.3 Mil.
Non Operating Income was 125.177 + -137.906 + -249.84 + -265.152 = $-527.7 Mil.
Cash Flow from Operations was 915.567 + -431.456 + -112.75 + -131.682 = $239.7 Mil.
|Accounts Receivable was $67.2 Mil.
Revenue was 133.605 + 152.834 + 152.529 + 162.969 = $601.9 Mil.
Gross Profit was 133.605 + 152.834 + 152.529 + 162.969 = $601.9 Mil.
Total Current Assets was $12,878.0 Mil.
Total Assets was $14,575.8 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 $57.0 Mil.
Total Current Liabilities was $133.6 Mil.
Long-Term Debt was $5,785.1 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)|
|=||(123.131 / 633.49)||/||(67.176 / 601.937)|
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)|
|=||(601.937 / 601.937)||/||(633.49 / 633.49)|
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 - (17378.646 + 1.915) / 20112.056)||/||(1 - (12878.047 + 2.694) / 14575.772)|
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))|
|=||(1.362 / (1.362 + 2.694))||/||(1.283 / (1.283 + 1.915))|
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)|
|=||(54.295 / 633.49)||/||(57.01 / 601.937)|
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)|
|=||((7037.196 + 277.822) / 20112.056)||/||((5785.11 + 133.595) / 14575.772)|
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|
|=||(353.278 - -527.721||-||239.679)||/||20112.056|
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 -1.50 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