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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 -1.01. The lowest was -2.97. And the median was -2.49.
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 * 0.9674||+||0.528 * 0.9872||+||0.404 * 0.9258||+||0.892 * 1.0491||+||0.115 * 1.2326|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9803||+||4.679 * -0.0168||-||0.327 * 0.9054|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $510 Mil.|
Revenue was 1177.012 + 1223.439 + 808.972 + 876.787 = $4,086 Mil.
Gross Profit was 285.846 + 295.245 + 204.225 + 214.295 = $1,000 Mil.
Total Current Assets was $1,314 Mil.
Total Assets was $1,929 Mil.
Property, Plant and Equipment(Net PPE) was $63 Mil.
Depreciation, Depletion and Amortization(DDA) was $19 Mil.
Selling, General & Admin. Expense(SGA) was $665 Mil.
Total Current Liabilities was $331 Mil.
Long-Term Debt was $305 Mil.
Net Income was 57.968 + 65.423 + 23.048 + 24.072 = $171 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 173.885 + -57.344 + -16.783 + 103.261 = $203 Mil.
|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.
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)|
|=||(510.004 / 4086.21)||/||(502.522 / 3895.105)|
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)|
|=||(295.245 / 3895.105)||/||(285.846 / 4086.21)|
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 - (1314.494 + 63.297) / 1929.459)||/||(1 - (1271.336 + 45.355) / 1904.988)|
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))|
|=||(17.831 / (17.831 + 45.355))||/||(18.795 / (18.795 + 63.297))|
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)|
|=||(665.088 / 4086.21)||/||(646.751 / 3895.105)|
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)|
|=||((304.941 + 331.037) / 1929.459)||/||((352.732 + 340.751) / 1904.988)|
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|
|=||(170.511 - 0||-||203.019)||/||1929.459|
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 -2.52 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