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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 -2.58.
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 * 1.2446||+||0.528 * 0.8485||+||0.404 * 0.996||+||0.892 * 0.9256||+||0.115 * 0.9871|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1264||+||4.679 * -0.0301||-||0.327 * 1.5796|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $88 Mil.|
Revenue was 378.787 + 464.365 + 464.629 + 489.534 = $1,797 Mil.
Gross Profit was 164.051 + 192.049 + 173.105 + 174.412 = $704 Mil.
Total Current Assets was $607 Mil.
Total Assets was $4,150 Mil.
Property, Plant and Equipment(Net PPE) was $1,236 Mil.
Depreciation, Depletion and Amortization(DDA) was $150 Mil.
Selling, General & Admin. Expense(SGA) was $262 Mil.
Total Current Liabilities was $257 Mil.
Long-Term Debt was $2,479 Mil.
Net Income was 25.363 + 85.856 + 7.584 + 40.195 = $159 Mil.
Non Operating Income was 0.262 + 52.295 + 0.214 + -7.023 = $46 Mil.
Cash Flow from Operations was 47.274 + 93.851 + 65.515 + 31.374 = $238 Mil.
|Accounts Receivable was $76 Mil.
Revenue was 451.769 + 487.303 + 496.67 + 506.079 = $1,942 Mil.
Gross Profit was 146.658 + 163.368 + 164.025 + 170.938 = $645 Mil.
Total Current Assets was $538 Mil.
Total Assets was $4,134 Mil.
Property, Plant and Equipment(Net PPE) was $1,288 Mil.
Depreciation, Depletion and Amortization(DDA) was $154 Mil.
Selling, General & Admin. Expense(SGA) was $251 Mil.
Total Current Liabilities was $333 Mil.
Long-Term Debt was $1,392 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)|
|=||(87.999 / 1797.315)||/||(76.387 / 1941.821)|
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)|
|=||(192.049 / 1941.821)||/||(164.051 / 1797.315)|
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 - (607.355 + 1235.596) / 4150.31)||/||(1 - (538.422 + 1288.009) / 4133.835)|
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))|
|=||(154.244 / (154.244 + 1288.009))||/||(150.142 / (150.142 + 1235.596))|
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)|
|=||(261.501 / 1797.315)||/||(250.819 / 1941.821)|
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)|
|=||((2478.581 + 256.995) / 4150.31)||/||((1392.309 + 332.604) / 4133.835)|
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|
|=||(158.998 - 45.748||-||238.014)||/||4150.31|
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 -2.76 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 Wendy's Co Annual Data
The Wendy's Co Quarterly Data