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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 13 years, the highest Beneish M-Score of The Valspar Corp was -1.94. The lowest was -3.13. And the median was -2.51.
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 The Valspar 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 * 1.0129||+||0.528 * 0.9428||+||0.404 * 1.0267||+||0.892 * 0.94||+||0.115 * 1.0124|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.058||+||4.679 * -0.0377||-||0.327 * 0.9255|
|This Year (Jul16) TTM:||Last Year (Jul15) TTM:|
|Accounts Receivable was $862 Mil.|
Revenue was 1141.942 + 1056.797 + 885.756 + 1149.538 = $4,234 Mil.
Gross Profit was 421.947 + 401.441 + 318.627 + 413.611 = $1,556 Mil.
Total Current Assets was $1,694 Mil.
Total Assets was $4,390 Mil.
Property, Plant and Equipment(Net PPE) was $647 Mil.
Depreciation, Depletion and Amortization(DDA) was $96 Mil.
Selling, General & Admin. Expense(SGA) was $820 Mil.
Total Current Liabilities was $1,397 Mil.
Long-Term Debt was $1,557 Mil.
Net Income was 116.988 + 80.027 + 52.431 + 102.356 = $352 Mil.
Non Operating Income was -0.103 + -0.751 + -0.615 + -2.039 = $-4 Mil.
Cash Flow from Operations was 213.428 + 16.486 + 20.489 + 270.604 = $521 Mil.
|Accounts Receivable was $905 Mil.
Revenue was 1149.126 + 1079.289 + 1014.669 + 1261.377 = $4,504 Mil.
Gross Profit was 411.283 + 393.203 + 333.292 + 422.543 = $1,560 Mil.
Total Current Assets was $1,865 Mil.
Total Assets was $4,578 Mil.
Property, Plant and Equipment(Net PPE) was $631 Mil.
Depreciation, Depletion and Amortization(DDA) was $95 Mil.
Selling, General & Admin. Expense(SGA) was $824 Mil.
Total Current Liabilities was $1,621 Mil.
Long-Term Debt was $1,707 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)|
|=||(861.587 / 4234.033)||/||(904.92 / 4504.461)|
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)|
|=||(1560.321 / 4504.461)||/||(1555.626 / 4234.033)|
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 - (1693.511 + 646.522) / 4390.081)||/||(1 - (1865.045 + 630.814) / 4578.018)|
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))|
|=||(94.716 / (94.716 + 630.814))||/||(95.708 / (95.708 + 646.522))|
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)|
|=||(819.846 / 4234.033)||/||(824.371 / 4504.461)|
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)|
|=||((1557.001 + 1396.589) / 4390.081)||/||((1706.95 + 1620.873) / 4578.018)|
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|
|=||(351.802 - -3.508||-||521.007)||/||4390.081|
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.
The Valspar Corp has a M-score of -2.70 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
The Valspar Corp Annual Data
The Valspar Corp Quarterly Data