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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 Wendy's Co was 6.19. The lowest was -5.71. And the median was -2.53.
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 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 * 1.1996||+||0.528 * 0.8617||+||0.404 * 1.0175||+||0.892 * 0.9301||+||0.115 * 1.0981|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9506||+||4.679 * -0.021||-||0.327 * 1.5729|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $77 Mil.|
Revenue was 464.629 + 489.534 + 466.246 + 549.864 = $1,970 Mil.
Gross Profit was 173.105 + 174.412 + 162.974 + 180.219 = $691 Mil.
Total Current Assets was $595 Mil.
Total Assets was $4,081 Mil.
Property, Plant and Equipment(Net PPE) was $1,226 Mil.
Depreciation, Depletion and Amortization(DDA) was $160 Mil.
Selling, General & Admin. Expense(SGA) was $247 Mil.
Total Current Liabilities was $305 Mil.
Long-Term Debt was $2,380 Mil.
Net Income was 7.584 + 40.195 + 27.507 + 23.294 = $99 Mil.
Non Operating Income was 0.214 + -7.023 + 0.239 + 0.205 = $-6 Mil.
Cash Flow from Operations was 65.515 + 31.374 + 21.74 + 72.18 = $191 Mil.
|Accounts Receivable was $69 Mil.
Revenue was 496.67 + 506.079 + 523.196 + 592.405 = $2,118 Mil.
Gross Profit was 164.025 + 170.938 + 149.006 + 155.968 = $640 Mil.
Total Current Assets was $670 Mil.
Total Assets was $4,179 Mil.
Property, Plant and Equipment(Net PPE) was $1,235 Mil.
Depreciation, Depletion and Amortization(DDA) was $180 Mil.
Selling, General & Admin. Expense(SGA) was $279 Mil.
Total Current Liabilities was $339 Mil.
Long-Term Debt was $1,409 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)|
|=||(77.078 / 1970.273)||/||(69.084 / 2118.35)|
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)|
|=||(174.412 / 2118.35)||/||(173.105 / 1970.273)|
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 - (595.042 + 1226.383) / 4080.782)||/||(1 - (670.233 + 1234.992) / 4179.455)|
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))|
|=||(179.56 / (179.56 + 1234.992))||/||(160.303 / (160.303 + 1226.383))|
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)|
|=||(246.806 / 1970.273)||/||(279.141 / 2118.35)|
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)|
|=||((2379.934 + 304.907) / 4080.782)||/||((1409.066 + 339.144) / 4179.455)|
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|
|=||(98.58 - -6.365||-||190.809)||/||4080.782|
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.
Wendy's Co has a M-score of -2.69 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
Wendy's Co Annual Data
Wendy's Co Quarterly Data