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Watsco Inc (NYSE:WSO)
Beneish M-Score
-2.46 (As of Today)

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.

Watsco Inc has a M-score of -2.46 suggests that the company is not a manipulator.

WSO' s 10-Year Beneish M-Score Range
Min: -2.98   Max: -1.01
Current: -2.46

-2.98
-1.01

During the past 13 years, the highest Beneish M-Score of Watsco Inc was -1.01. The lowest was -2.98. And the median was -2.49.


Definition

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 Watsco 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 * 1.0185+0.528 * 0.9938+0.404 * 0.9184+0.892 * 1.058+0.115 * 1.0085
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9876+4.679 * 0.0033-0.327 * 1.1094
=-2.46

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

This Year (Sep14) TTM:Last Year (Sep13) TTM:
Accounts Receivable was $503 Mil.
Revenue was 1134.999 + 1170.186 + 762.568 + 827.352 = $3,895 Mil.
Gross Profit was 274.765 + 279.273 + 188.069 + 198.53 = $941 Mil.
Total Current Assets was $1,271 Mil.
Total Assets was $1,905 Mil.
Property, Plant and Equipment(Net PPE) was $45 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $647 Mil.
Total Current Liabilities was $341 Mil.
Long-Term Debt was $353 Mil.
Net Income was 54.461 + 56.101 + 16.753 + 17.321 = $145 Mil.
Non Operating Income was 0 + -2.494 + 0 + 0 = $-2 Mil.
Cash Flow from Operations was 106.877 + -90.059 + 24.901 + 99.086 = $141 Mil.
Accounts Receivable was $466 Mil.
Revenue was 1081.893 + 1120.452 + 713.633 + 765.54 = $3,682 Mil.
Gross Profit was 258.597 + 266.68 + 175.446 + 182.793 = $884 Mil.
Total Current Assets was $1,162 Mil.
Total Assets was $1,818 Mil.
Property, Plant and Equipment(Net PPE) was $45 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $619 Mil.
Total Current Liabilities was $312 Mil.
Long-Term Debt was $285 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(502.522 / 3895.105) / (466.34 / 3681.518)
=0.12901372 / 0.12667057
=1.0185

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(279.273 / 3681.518) / (274.765 / 3895.105)
=0.23998687 / 0.24149208
=0.9938

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (1271.336 + 45.355) / 1904.988) / (1 - (1161.815 + 44.891) / 1818.033)
=0.30881927 / 0.33625737
=0.9184

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=3895.105 / 3681.518
=1.058

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))
=(17.858 / (17.858 + 44.891)) / (17.831 / (17.831 + 45.355))
=0.28459418 / 0.28219859
=1.0085

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)
=(646.751 / 3895.105) / (618.991 / 3681.518)
=0.16604199 / 0.16813472
=0.9876

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)
=((352.732 + 340.751) / 1904.988) / ((284.8 + 311.789) / 1818.033)
=0.36403536 / 0.32815081
=1.1094

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(144.636 - -2.494 - 140.805) / 1904.988
=0.0033

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.

Watsco Inc has a M-score of -2.46 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Watsco Inc Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 0.98891.03190.88191.00990.87691.49470.80631.0261.00010.9699
GMI 0.96581.01920.9781.0110.97811.08231.01490.96771.03060.9879
AQI 0.87961.10790.98031.29311.04980.97650.92751.06181.17420.974
SGI 1.06661.27961.07010.97630.96711.17741.4211.04681.15241.0908
DEPI 0.74051.01191.55631.11990.85221.10340.79871.11960.8460.9655
SGAI 0.97980.940.99761.0511.05720.98880.89370.99590.96650.9767
LVGI 1.03140.99690.81010.93640.73281.13871.09080.78842.02330.7971
TATA -0.00680.05540.0248-0.0525-0.0742-0.0387-0.05820.0229-0.0416-0.0135
M-score -2.57-1.88-2.30-2.59-2.90-2.05-2.61-2.22-2.80-2.44

Watsco Inc Quarterly Data

Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14
DSRI 1.05551.01611.00010.98340.91310.92070.96990.960.98591.0185
GMI 1.00671.00911.03061.01171.00170.99680.98790.99380.99570.9938
AQI 1.23231.22321.17421.21010.98130.98230.9740.93470.94730.9184
SGI 1.10991.1081.15241.14131.12961.11161.09081.07991.06121.058
DEPI 1.01040.9410.8460.80850.80530.88830.96550.98871.01751.0085
SGAI 0.9650.96190.96650.97640.97440.97980.97670.97510.9850.9876
LVGI 0.96841.10142.02331.6071.22031.11350.79710.89250.92851.1094
TATA 0.0266-0.0459-0.0416-0.0221-0.0169-0.0174-0.0115-0.0328-0.01190.0033
M-score -2.09-2.52-2.80-2.60-2.62-2.59-2.43-2.59-2.49-2.46
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