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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 Watsco Inc was -1.13. The lowest was -2.90. 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 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 * 0.9962||+||0.528 * 0.99||+||0.404 * 0.9397||+||0.892 * 1.0428||+||0.115 * 1.0747|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9884||+||4.679 * -0.0271||-||0.327 * 0.8749|
|This Year (Dec15) TTM:||Last Year (Dec14) TTM:|
|Accounts Receivable was $451 Mil.|
Revenue was 903.816 + 1177.012 + 1223.439 + 808.972 = $4,113 Mil.
Gross Profit was 222.041 + 285.846 + 295.245 + 204.225 = $1,007 Mil.
Total Current Assets was $1,181 Mil.
Total Assets was $1,788 Mil.
Property, Plant and Equipment(Net PPE) was $63 Mil.
Depreciation, Depletion and Amortization(DDA) was $19 Mil.
Selling, General & Admin. Expense(SGA) was $671 Mil.
Total Current Liabilities was $270 Mil.
Long-Term Debt was $245 Mil.
Net Income was 26.49 + 57.968 + 65.423 + 23.048 = $173 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 121.625 + 173.885 + -57.344 + -16.783 = $221 Mil.
|Accounts Receivable was $434 Mil.
Revenue was 876.787 + 1134.999 + 1170.186 + 762.568 = $3,945 Mil.
Gross Profit was 214.295 + 274.765 + 279.273 + 188.069 = $956 Mil.
Total Current Assets was $1,157 Mil.
Total Assets was $1,791 Mil.
Property, Plant and Equipment(Net PPE) was $53 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $651 Mil.
Total Current Liabilities was $287 Mil.
Long-Term Debt was $303 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)|
|=||(451.079 / 4113.239)||/||(434.234 / 3944.54)|
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)|
|=||(285.846 / 3944.54)||/||(222.041 / 4113.239)|
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 - (1181.265 + 62.715) / 1788.442)||/||(1 - (1157.335 + 53.48) / 1791.067)|
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))|
|=||(17.927 / (17.927 + 53.48))||/||(19.117 / (19.117 + 62.715))|
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)|
|=||(670.609 / 4113.239)||/||(650.655 / 3944.54)|
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)|
|=||((245.3 + 270.301) / 1788.442)||/||((303.199 + 287.022) / 1791.067)|
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|
|=||(172.929 - 0||-||221.383)||/||1788.442|
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 -2.55 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
Watsco Inc Annual Data
Watsco Inc Quarterly Data