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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 -2.51.
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 * 0.9874||+||0.528 * 1.0014||+||0.404 * 1.002||+||0.892 * 1.0253||+||0.115 * 0.943|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0043||+||4.679 * -0.0806||-||0.327 * 0.8563|
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $607 Mil.|
Revenue was 1214.435 + 851.424 + 903.816 + 1177.012 = $4,147 Mil.
Gross Profit was 291.861 + 212.447 + 222.041 + 285.846 = $1,012 Mil.
Total Current Assets was $1,407 Mil.
Total Assets was $2,020 Mil.
Property, Plant and Equipment(Net PPE) was $60 Mil.
Depreciation, Depletion and Amortization(DDA) was $20 Mil.
Selling, General & Admin. Expense(SGA) was $679 Mil.
Total Current Liabilities was $407 Mil.
Long-Term Debt was $267 Mil.
Net Income was 64.621 + 25.537 + 26.49 + 57.968 = $175 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 0.081 + 41.852 + 121.625 + 173.885 = $337 Mil.
|Accounts Receivable was $599 Mil.
Revenue was 1223.439 + 808.972 + 876.787 + 1134.999 = $4,044 Mil.
Gross Profit was 295.245 + 204.225 + 214.295 + 274.765 = $989 Mil.
Total Current Assets was $1,441 Mil.
Total Assets was $2,067 Mil.
Property, Plant and Equipment(Net PPE) was $61 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $659 Mil.
Total Current Liabilities was $372 Mil.
Long-Term Debt was $433 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)|
|=||(606.51 / 4146.687)||/||(599.071 / 4044.197)|
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)|
|=||(988.53 / 4044.197)||/||(1012.195 / 4146.687)|
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 - (1406.825 + 60.311) / 2019.591)||/||(1 - (1441.41 + 60.989) / 2066.555)|
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))|
|=||(18.489 / (18.489 + 60.989))||/||(19.751 / (19.751 + 60.311))|
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)|
|=||(679.056 / 4146.687)||/||(659.449 / 4044.197)|
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)|
|=||((267.348 + 406.549) / 2019.591)||/||((433.412 + 371.898) / 2066.555)|
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|
|=||(174.616 - 0||-||337.443)||/||2019.591|
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 -2.80 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