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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 9 years, the highest Beneish M-Score of Two Harbors Investment Corp was 15.29. The lowest was -2.99. And the median was -1.64.
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 * 0.9799||+||0.528 * 1.0009||+||0.404 * 1.5825||+||0.892 * 0.9315||+||0.115 * 0.863|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0986||+||4.679 * 0.0945||-||0.327 * 1.3503|
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $76.9 Mil.|
Revenue was 154.776 + 130.763 + 133.605 + 152.834 = $572.0 Mil.
Gross Profit was 154.686 + 130.046 + 133.605 + 152.834 = $571.2 Mil.
Total Current Assets was $18,844.6 Mil.
Total Assets was $20,740.4 Mil.
Property, Plant and Equipment(Net PPE) was $2.5 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.4 Mil.
Selling, General & Admin. Expense(SGA) was $72.1 Mil.
Total Current Liabilities was $468.0 Mil.
Long-Term Debt was $7,111.9 Mil.
Net Income was -16.981 + -88.93 + 210.706 + -34.79 = $70.0 Mil.
Non Operating Income was -249.75 + -264.435 + 26.703 + -272.358 = $-759.8 Mil.
Cash Flow from Operations was -112.75 + -131.682 + -312.543 + -572.931 = $-1,129.9 Mil.
|Accounts Receivable was $84.2 Mil.
Revenue was 152.529 + 162.969 + 156.22 + 142.303 = $614.0 Mil.
Gross Profit was 152.359 + 162.842 + 156.22 + 142.303 = $613.7 Mil.
Total Current Assets was $17,380.7 Mil.
Total Assets was $18,447.7 Mil.
Property, Plant and Equipment(Net PPE) was $2.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.3 Mil.
Selling, General & Admin. Expense(SGA) was $70.5 Mil.
Total Current Liabilities was $278.0 Mil.
Long-Term Debt was $4,714.7 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)|
|=||(76.892 / 571.978)||/||(84.241 / 614.021)|
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)|
|=||(613.724 / 614.021)||/||(571.171 / 571.978)|
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 - (18844.628 + 2.514) / 20740.438)||/||(1 - (17380.658 + 2.899) / 18447.721)|
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))|
|=||(1.272 / (1.272 + 2.899))||/||(1.374 / (1.374 + 2.514))|
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)|
|=||(72.115 / 571.978)||/||(70.468 / 614.021)|
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)|
|=||((7111.861 + 468.031) / 20740.438)||/||((4714.735 + 278.046) / 18447.721)|
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|
|=||(70.005 - -759.84||-||-1129.906)||/||20740.438|
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 -2.03 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