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Watsco, Inc. (NYSE:WSO)
Beneish M-Score
-2.44 (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 -2.44 suggests that the company is not a manipulator.

WSO' s 10-Year Beneish M-Score Range
Min: -2.9   Max: -1.13
Current: -2.44

-2.9
-1.13

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 -2.54.


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 * 0.9699+0.528 * 0.9879+0.404 * 0.974+0.892 * 1.0908+0.115 * 0.9655
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9767+4.679 * -0.0135-0.327 * 0.7971
=-2.44

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

This Year (Dec13) TTM:Last Year (Dec12) TTM:
Accounts Receivable was $400 Mil.
Revenue was 827.352 + 1081.893 + 1120.452 + 713.633 = $3,743 Mil.
Gross Profit was 198.53 + 258.597 + 266.68 + 175.446 = $899 Mil.
Total Current Assets was $1,021 Mil.
Total Assets was $1,670 Mil.
Property, Plant and Equipment(Net PPE) was $45 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $628 Mil.
Total Current Liabilities was $244 Mil.
Long-Term Debt was $230 Mil.
Net Income was 17.321 + 45.699 + 51.318 + 13.385 = $128 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 99.086 + 128.09 + -59.408 + -17.499 = $150 Mil.
Accounts Receivable was $378 Mil.
Revenue was 765.54 + 1020.859 + 1011.801 + 633.512 = $3,432 Mil.
Gross Profit was 182.793 + 242.505 + 238.475 + 150.622 = $814 Mil.
Total Current Assets was $1,015 Mil.
Total Assets was $1,682 Mil.
Property, Plant and Equipment(Net PPE) was $43 Mil.
Depreciation, Depletion and Amortization(DDA) was $16 Mil.
Selling, General & Admin. Expense(SGA) was $589 Mil.
Total Current Liabilities was $282 Mil.
Long-Term Debt was $316 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)
=(399.565 / 3743.33) / (377.655 / 3431.712)
=0.10674052 / 0.11004857
=0.9699

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)
=(258.597 / 3431.712) / (198.53 / 3743.33)
=0.23731449 / 0.24022809
=0.9879

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 - (1021.102 + 45.418) / 1669.531) / (1 - (1015.451 + 42.842) / 1682.055)
=0.36118587 / 0.3708333
=0.974

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
=3743.33 / 3431.712
=1.0908

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))
=(15.911 / (15.911 + 42.842)) / (17.706 / (17.706 + 45.418))
=0.2708117 / 0.28049553
=0.9655

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)
=(628.044 / 3743.33) / (589.487 / 3431.712)
=0.16777682 / 0.17177636
=0.9767

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)
=((230.044 + 243.506) / 1669.531) / ((316.182 + 282.358) / 1682.055)
=0.28364253 / 0.35583854
=0.7971

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
=(127.723 - 0 - 150.269) / 1669.531
=-0.0135

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 -2.44 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 0.98891.04710.86741.01190.87691.49470.80631.0261.00010.9699
GMI 0.96581.01530.97751.01540.97811.08231.01490.96771.03060.9879
AQI 0.87961.10790.95891.32191.04980.97650.92751.06181.17420.974
SGI 1.06661.2611.06810.99260.96711.17741.4211.04681.15241.0908
DEPI 0.81271.18911.21481.11250.85221.10340.79871.11960.8460.9655
SGAI 0.97980.93711.00051.05121.05720.98880.89370.99590.96650.9767
LVGI 1.03230.99690.80680.94010.73281.13551.09390.78842.02320.7971
TATA -0.00690.05540.0248-0.0525-0.0742-0.0387-0.05820.0299-0.0416-0.0135
M-score -2.56-1.86-2.37-2.56-2.90-2.04-2.61-2.18-2.80-2.44

Watsco, Inc. Quarterly Data

Sep11Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13
DSRI 1.10221.0261.11841.05551.01611.00010.98340.91310.92070.9699
GMI 0.9830.96770.98841.00671.00911.03061.01171.00170.99680.9879
AQI 0.99821.06180.99461.23231.22321.17421.21010.98130.98230.974
SGI 1.08661.04681.07241.10991.1081.15241.14131.12961.11161.0908
DEPI 1.04681.11961.13611.01040.9410.8460.80850.80530.88830.9655
SGAI 0.99310.99590.98610.9650.96190.96650.97640.97440.97980.9767
LVGI 1.00240.78840.91030.96841.10142.02321.60711.22021.11350.7971
TATA 0.06290.0299-0.01150.0313-0.041-0.0416-0.0221-0.0186-0.0192-0.0135
M-score -2.02-2.18-2.32-2.07-2.50-2.80-2.60-2.63-2.60-2.44
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