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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 Wendy's Co was 6.20. The lowest was -5.73. And the median was -2.57.
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 Wendy's Co 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 * 1.8917||+||0.528 * 0.8002||+||0.404 * 1.2295||+||0.892 * 0.8644||+||0.115 * 1.0583|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.2296||+||4.679 * -0.0406||-||0.327 * 1.2744|
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $115 Mil.|
Revenue was 382.718 + 378.787 + 464.365 + 464.629 = $1,690 Mil.
Gross Profit was 180.164 + 164.051 + 192.049 + 173.105 = $709 Mil.
Total Current Assets was $656 Mil.
Total Assets was $4,135 Mil.
Property, Plant and Equipment(Net PPE) was $1,191 Mil.
Depreciation, Depletion and Amortization(DDA) was $140 Mil.
Selling, General & Admin. Expense(SGA) was $262 Mil.
Total Current Liabilities was $278 Mil.
Long-Term Debt was $2,485 Mil.
Net Income was 26.48 + 25.363 + 85.856 + 7.584 = $145 Mil.
Non Operating Income was 0.276 + 0.262 + 52.295 + 0.214 = $53 Mil.
Cash Flow from Operations was 53.684 + 47.274 + 93.851 + 65.515 = $260 Mil.
|Accounts Receivable was $71 Mil.
Revenue was 489.534 + 451.769 + 501.951 + 512.489 = $1,956 Mil.
Gross Profit was 174.412 + 146.658 + 166.932 + 168.682 = $657 Mil.
Total Current Assets was $1,554 Mil.
Total Assets was $5,107 Mil.
Property, Plant and Equipment(Net PPE) was $1,254 Mil.
Depreciation, Depletion and Amortization(DDA) was $157 Mil.
Selling, General & Admin. Expense(SGA) was $246 Mil.
Total Current Liabilities was $298 Mil.
Long-Term Debt was $2,380 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)|
|=||(115.304 / 1690.499)||/||(70.515 / 1955.743)|
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)|
|=||(656.684 / 1955.743)||/||(709.369 / 1690.499)|
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 - (655.732 + 1191.353) / 4135.22)||/||(1 - (1553.919 + 1254.489) / 5106.545)|
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))|
|=||(156.668 / (156.668 + 1254.489))||/||(139.627 / (139.627 + 1191.353))|
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)|
|=||(261.854 / 1690.499)||/||(246.378 / 1955.743)|
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)|
|=||((2485.414 + 277.954) / 4135.22)||/||((2379.782 + 297.9) / 5106.545)|
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|
|=||(145.283 - 53.047||-||260.324)||/||4135.22|
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 Wendy's Co has a M-score of -2.11 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
The Wendy's Co Annual Data
The Wendy's Co Quarterly Data