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GuruFocus has detected 4 Warning Signs with Watsco Inc $WSO.
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Watsco Inc (NYSE:WSO)
Beneish M-Score
-2.63 (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 -2.63 suggests that the company is not a manipulator.

WSO' s Beneish M-Score Range Over the Past 10 Years
Min: -2.97   Max: -1.05
Current: -2.63

-2.97
-1.05

During the past 13 years, the highest Beneish M-Score of Watsco Inc was -1.05. The lowest was -2.97. And the median was -2.45.


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 * 1.0166+0.528 * 0.996+0.404 * 0.9543+0.892 * 1.0206+0.115 * 1.6726
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0115+4.679 * -0.0448-0.327 * 1.0926
=-2.63

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Mar17) TTM:Last Year (Mar16) TTM:
Accounts Receivable was $482 Mil.
Revenue was 872.095 + 913.611 + 1241.232 + 1214.435 = $4,241 Mil.
Gross Profit was 218.556 + 228.072 + 302.204 + 291.861 = $1,041 Mil.
Total Current Assets was $1,301 Mil.
Total Assets was $1,935 Mil.
Property, Plant and Equipment(Net PPE) was $91 Mil.
Depreciation, Depletion and Amortization(DDA) was $15 Mil.
Selling, General & Admin. Expense(SGA) was $697 Mil.
Total Current Liabilities was $379 Mil.
Long-Term Debt was $280 Mil.
Net Income was 26.181 + 29.553 + 63.099 + 64.621 = $183 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 34.317 + 131.456 + 104.367 + 0.081 = $270 Mil.
Accounts Receivable was $464 Mil.
Revenue was 851.424 + 903.816 + 1177.012 + 1223.439 = $4,156 Mil.
Gross Profit was 212.447 + 222.041 + 285.846 + 295.245 = $1,016 Mil.
Total Current Assets was $1,262 Mil.
Total Assets was $1,877 Mil.
Property, Plant and Equipment(Net PPE) was $62 Mil.
Depreciation, Depletion and Amortization(DDA) was $19 Mil.
Selling, General & Admin. Expense(SGA) was $675 Mil.
Total Current Liabilities was $347 Mil.
Long-Term Debt was $238 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)
=(481.6 / 4241.373) / (464.154 / 4155.691)
=0.11354814 / 0.11169117
=1.0166

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)
=(1015.579 / 4155.691) / (1040.693 / 4241.373)
=0.2443827 / 0.24536701
=0.996

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 - (1300.501 + 90.532) / 1935.279) / (1 - (1261.925 + 61.866) / 1876.89)
=0.28122353 / 0.29468909
=0.9543

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
=4241.373 / 4155.691
=1.0206

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))
=(19.453 / (19.453 + 61.866)) / (15.109 / (15.109 + 90.532))
=0.23921839 / 0.14302212
=1.6726

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)
=(697.03 / 4241.373) / (675.171 / 4155.691)
=0.16434065 / 0.16246901
=1.0115

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)
=((280.3 + 378.898) / 1935.279) / ((237.9 + 347.251) / 1876.89)
=0.34062169 / 0.31176627
=1.0926

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
=(183.454 - 0 - 270.221) / 1935.279
=-0.0448

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 -2.63 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 local exchange's currency.

Watsco Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.01190.87691.49470.80631.0261.00010.96991.03130.99621.0283
GMI 1.01540.97811.08231.01490.96771.03060.98790.99080.990.9991
AQI 1.32191.04980.97650.92751.06181.17420.9740.8970.93970.9532
SGI 0.99260.96711.17741.4211.04681.15241.09081.05381.04281.0261
DEPI 1.11250.85221.10340.79871.11960.8460.96551.11731.07471.2873
SGAI 1.05121.05720.98880.89370.99590.96650.97670.98320.98841.0012
LVGI 0.94010.73281.13551.09390.78842.02320.7981.16050.87571.0176
TATA -0.0567-0.0742-0.0387-0.05820.0229-0.0416-0.01350.0036-0.0271-0.0506
M-score -2.58-2.90-2.04-2.61-2.22-2.80-2.44-2.47-2.55-2.66

Watsco Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.03131.05031.03490.96740.99621.02130.98741.04271.02831.0166
GMI 0.99080.98670.98440.98720.990.99721.00141.00150.99910.996
AQI 0.8970.8920.90660.92580.93970.98891.0020.98060.95320.9543
SGI 1.05381.05241.05261.04911.04281.04131.02531.03051.02611.0206
DEPI 1.11731.13311.21731.23261.07471.06310.9430.91341.28731.6726
SGAI 0.98320.97960.97830.98030.98840.98941.00431.00211.00121.0115
LVGI 1.16051.13091.05630.90540.87570.84460.85630.8951.01761.0926
TATA 0.00360.02880.015-0.0168-0.0271-0.0557-0.0806-0.045-0.0506-0.0448
M-score -2.47-2.33-2.37-2.52-2.55-2.63-2.80-2.61-2.66-2.63
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