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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.
Watsco, Inc. has a M-score of -2.44 suggests that the company is not a 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 -2.54.
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|
|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
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)|
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)|
|=||(258.597 / 3431.712)||/||(198.53 / 3743.33)|
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 - (1021.102 + 45.418) / 1669.531)||/||(1 - (1015.451 + 42.842) / 1682.055)|
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))|
|=||(15.911 / (15.911 + 42.842))||/||(17.706 / (17.706 + 45.418))|
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)|
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)|
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|
|=||(127.723 - 0||-||150.269)||/||1669.531|
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.
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