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Beneish M-Score 19.16 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 8 years, the highest Beneish M-Score of Two Harbors Investment Corp was 19.16. The lowest was -2.68. And the median was -1.37.
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 * 0.9445||+||0.528 * 1||+||0.404 * 0.8448||+||0.892 * 1.1081||+||0.115 * 186.975|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.8849||+||4.679 * 0.1373||-||0.327 * 2.3138|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $84.2 Mil.|
Revenue was 152.529 + 162.969 + 156.22 + 142.303 = $614.0 Mil.
Gross Profit was 152.529 + 162.969 + 156.22 + 142.303 = $614.0 Mil.
Total Current Assets was $17,380.7 Mil.
Total Assets was $18,447.7 Mil.
Property, Plant and Equipment(Net PPE) was $236.6 Mil.
Depreciation, Depletion and Amortization(DDA) was $1.3 Mil.
Selling, General & Admin. Expense(SGA) was $47.5 Mil.
Total Current Liabilities was $278.0 Mil.
Long-Term Debt was $1,714.7 Mil.
Net Income was 221.501 + 94.793 + -36.963 + 193.59 = $472.9 Mil.
Non Operating Income was 98.67 + -7.1 + -143.39 + 111.697 = $59.9 Mil.
Cash Flow from Operations was -526.502 + -513.416 + -408.233 + -672.108 = $-2,120.3 Mil.
|Accounts Receivable was $80.5 Mil.
Revenue was 140.149 + 138.535 + 137.457 + 137.974 = $554.1 Mil.
Gross Profit was 140.149 + 138.535 + 137.457 + 137.974 = $554.1 Mil.
Total Current Assets was $16,865.3 Mil.
Total Assets was $17,814.7 Mil.
Property, Plant and Equipment(Net PPE) was $0.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $2.4 Mil.
Selling, General & Admin. Expense(SGA) was $48.5 Mil.
Total Current Liabilities was $269.8 Mil.
Long-Term Debt was $561.9 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)|
|=||(84.241 / 614.021)||/||(80.491 / 554.115)|
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)|
|=||(162.969 / 554.115)||/||(152.529 / 614.021)|
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 - (17380.658 + 236.56) / 18447.721)||/||(1 - (16865.332 + 0) / 17814.669)|
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))|
|=||(2.414 / (2.414 + 0))||/||(1.272 / (1.272 + 236.56))|
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)|
|=||(47.51 / 614.021)||/||(48.452 / 554.115)|
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)|
|=||((1714.735 + 278.046) / 18447.721)||/||((561.921 + 269.782) / 17814.669)|
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|
|=||(472.921 - 59.877||-||-2120.259)||/||18447.721|
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 19.12 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