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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 Valeant Pharmaceuticals International Inc was 2.53. The lowest was -3.73. And the median was -2.28.
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 Valeant Pharmaceuticals International Inc 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 * 1.0201||+||0.528 * 0.9795||+||0.404 * 1.5452||+||0.892 * 1.2517||+||0.115 * 0.8461|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1084||+||4.679 * -0.0606||-||0.327 * 0.9741|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $2,693 Mil.|
Revenue was 2371.6 + 2736.4 + 2786.8 + 2732.4 = $10,627 Mil.
Gross Profit was 1741.7 + 2059.7 + 2138.6 + 2047.3 = $7,987 Mil.
Total Current Assets was $6,234 Mil.
Total Assets was $49,020 Mil.
Property, Plant and Equipment(Net PPE) was $1,466 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,967 Mil.
Selling, General & Admin. Expense(SGA) was $2,939 Mil.
Total Current Liabilities was $4,597 Mil.
Long-Term Debt was $31,303 Mil.
Net Income was -373.7 + -361.9 + 49.5 + -53 = $-739 Mil.
Non Operating Income was -6.2 + -3.3 + -34 + 5.6 = $-38 Mil.
Cash Flow from Operations was 558.1 + 562.4 + 736.5 + 410.5 = $2,268 Mil.
|Accounts Receivable was $2,109 Mil.
Revenue was 2170.1 + 2222.5 + 2056.2 + 2041.1 = $8,490 Mil.
Gross Profit was 1647.9 + 1651.2 + 1495.4 + 1455.5 = $6,250 Mil.
Total Current Assets was $16,192 Mil.
Total Assets was $38,566 Mil.
Property, Plant and Equipment(Net PPE) was $1,335 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,744 Mil.
Selling, General & Admin. Expense(SGA) was $2,118 Mil.
Total Current Liabilities was $3,097 Mil.
Long-Term Debt was $25,898 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)|
|=||(2692.7 / 10627.2)||/||(2108.8 / 8489.9)|
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)|
|=||(6250 / 8489.9)||/||(7987.3 / 10627.2)|
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 - (6233.7 + 1465.5) / 49019.9)||/||(1 - (16192.2 + 1334.8) / 38565.9)|
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))|
|=||(1743.5 / (1743.5 + 1334.8))||/||(2967.3 / (2967.3 + 1465.5))|
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)|
|=||(2938.6 / 10627.2)||/||(2118.1 / 8489.9)|
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)|
|=||((31303.4 + 4597.4) / 49019.9)||/||((25897.9 + 3097.1) / 38565.9)|
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|
|=||(-739.1 - -37.9||-||2267.5)||/||49019.9|
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.
Valeant Pharmaceuticals International Inc has a M-score of -2.34 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
Valeant Pharmaceuticals International Inc Annual Data
Valeant Pharmaceuticals International Inc Quarterly Data