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Watsco Inc (NYSE:WSO)
Beneish M-Score
-2.32 (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 -2.32 suggests that the company is not a manipulator.

WSO' s 10-Year Beneish M-Score Range
Min: -2.97   Max: -1.01
Current: -2.32

-2.97
-1.01

During the past 13 years, the highest Beneish M-Score of Watsco Inc was -1.01. The lowest was -2.97. 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 * 1.0503+0.528 * 0.9867+0.404 * 0.892+0.892 * 1.0524+0.115 * 1.1331
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9796+4.679 * 0.0301-0.327 * 1.1309
=-2.32

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

This Year (Mar15) TTM:Last Year (Mar14) TTM:
Accounts Receivable was $436 Mil.
Revenue was 808.972 + 876.787 + 1134.999 + 1170.186 = $3,991 Mil.
Gross Profit was 204.225 + 214.295 + 274.765 + 279.273 = $973 Mil.
Total Current Assets was $1,273 Mil.
Total Assets was $1,890 Mil.
Property, Plant and Equipment(Net PPE) was $53 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $655 Mil.
Total Current Liabilities was $356 Mil.
Long-Term Debt was $341 Mil.
Net Income was 23.048 + 24.072 + 54.461 + 56.101 = $158 Mil.
Non Operating Income was 0 + 0 + 0 + -2.494 = $-2 Mil.
Cash Flow from Operations was -16.783 + 103.261 + 106.877 + -90.059 = $103 Mil.
Accounts Receivable was $395 Mil.
Revenue was 762.568 + 827.352 + 1081.893 + 1120.452 = $3,792 Mil.
Gross Profit was 188.069 + 198.53 + 258.597 + 266.68 = $912 Mil.
Total Current Assets was $1,139 Mil.
Total Assets was $1,777 Mil.
Property, Plant and Equipment(Net PPE) was $44 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $636 Mil.
Total Current Liabilities was $353 Mil.
Long-Term Debt was $227 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)
=(436.456 / 3990.944) / (394.873 / 3792.265)
=0.10936159 / 0.1041259
=1.0503

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)
=(214.295 / 3792.265) / (204.225 / 3990.944)
=0.24045682 / 0.24369122
=0.9867

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 - (1273.336 + 53.115) / 1889.505) / (1 - (1139.166 + 44.072) / 1776.856)
=0.29799021 / 0.33408335
=0.892

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
=3990.944 / 3792.265
=1.0524

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))
=(17.84 / (17.84 + 44.072)) / (18.114 / (18.114 + 53.115))
=0.28815092 / 0.25430653
=1.1331

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)
=(655.356 / 3990.944) / (635.668 / 3792.265)
=0.16421077 / 0.16762225
=0.9796

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)
=((341.295 + 356.141) / 1889.505) / ((226.744 + 353.175) / 1776.856)
=0.36911043 / 0.32637366
=1.1309

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
=(157.682 - -2.494 - 103.296) / 1889.505
=0.0301

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 -2.32 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

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
DSRI 1.04710.86741.01190.87691.49470.80631.0261.00010.96991.0313
GMI 1.01530.97751.01540.97811.08231.01490.96771.03060.98790.9908
AQI 1.10790.95891.32191.04980.97650.92751.06181.17420.9740.897
SGI 1.2611.06810.99260.96711.17741.4211.04681.15241.09081.0538
DEPI 1.18911.21481.11250.85221.10340.79871.11960.8460.96551.1173
SGAI 0.93711.00051.05121.05720.98880.89370.99590.96650.97670.9832
LVGI 0.99690.80680.94010.73281.13551.09390.78842.02320.7981.1619
TATA 0.05540.0248-0.0525-0.0742-0.0387-0.05820.0299-0.0416-0.01350.0036
M-score -1.86-2.37-2.56-2.90-2.04-2.61-2.18-2.80-2.44-2.47

Watsco Inc Quarterly Data

Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15
DSRI 1.00010.98340.91310.92070.96990.960.98591.01851.03131.0503
GMI 1.03061.01171.00170.99680.98790.99380.99570.99380.99080.9867
AQI 1.17421.21010.98130.98230.9740.93470.94730.91840.8970.892
SGI 1.15241.14131.12961.11161.09081.07991.06121.0581.05381.0524
DEPI 0.8460.80850.80530.88830.96550.98871.01751.00851.11731.1331
SGAI 0.96650.97640.97440.97980.97670.97510.9850.98760.98320.9796
LVGI 2.02321.6071.22031.11350.7980.89250.92851.10941.16191.1309
TATA -0.0416-0.0221-0.0169-0.0174-0.0115-0.0328-0.01190.00330.0050.0301
M-score -2.80-2.60-2.62-2.59-2.43-2.59-2.49-2.46-2.46-2.32
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