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Watsco Inc (NYSE:WSO)
Beneish M-Score
-2.57 (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 -2.57 suggests that the company is not a manipulator.

WSO' s 10-Year Beneish M-Score Range
Min: -2.97   Max: -1.01
Current: -2.57

-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 -2.51.


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 * 0.96+0.528 * 0.9938+0.404 * 0.9347+0.892 * 1.0799+0.115 * 1.2215
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9751+4.679 * -0.0335-0.327 * 0.8925
=-2.57

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

This Year (Mar14) TTM:Last Year (Mar13) TTM:
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 $13 Mil.
Selling, General & Admin. Expense(SGA) was $636 Mil.
Total Current Liabilities was $353 Mil.
Long-Term Debt was $227 Mil.
Net Income was 16.753 + 17.321 + 45.699 + 51.318 = $131 Mil.
Non Operating Income was -2.018 + 0 + 0 + 0 = $-2 Mil.
Cash Flow from Operations was 24.901 + 99.086 + 128.09 + -59.408 = $193 Mil.
Accounts Receivable was $381 Mil.
Revenue was 713.633 + 765.54 + 1020.859 + 1011.801 = $3,512 Mil.
Gross Profit was 175.446 + 182.793 + 242.505 + 238.475 = $839 Mil.
Total Current Assets was $1,067 Mil.
Total Assets was $1,727 Mil.
Property, Plant and Equipment(Net PPE) was $43 Mil.
Depreciation, Depletion and Amortization(DDA) was $17 Mil.
Selling, General & Admin. Expense(SGA) was $604 Mil.
Total Current Liabilities was $310 Mil.
Long-Term Debt was $322 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)
=(394.873 / 3792.265) / (380.917 / 3511.833)
=0.1041259 / 0.10846672
=0.96

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)
=(198.53 / 3511.833) / (188.069 / 3792.265)
=0.23896894 / 0.24045682
=0.9938

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 - (1139.166 + 44.072) / 1776.856) / (1 - (1066.9 + 42.997) / 1727.283)
=0.33408335 / 0.35743187
=0.9347

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
=3792.265 / 3511.833
=1.0799

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))
=(17.13 / (17.13 + 42.997)) / (13.406 / (13.406 + 44.072))
=0.28489697 / 0.23323706
=1.2215

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)
=(635.668 / 3792.265) / (603.666 / 3511.833)
=0.16762225 / 0.17189485
=0.9751

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)
=((226.744 + 353.175) / 1776.856) / ((322.004 + 309.64) / 1727.283)
=0.32637366 / 0.36568646
=0.8925

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
=(131.091 - -2.018 - 192.669) / 1776.856
=-0.0335

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 -2.57 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

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 0.98891.04710.86741.01190.87691.49470.80631.0261.00010.9699
GMI 0.96581.01530.97751.01540.97811.08231.01490.96771.03060.9879
AQI 0.87961.10790.95891.32191.04980.97650.92751.06181.17420.974
SGI 1.06661.2611.06810.99260.96711.17741.4211.04681.15241.0908
DEPI 0.81271.18911.21481.11250.85221.10340.79871.11960.8460.9655
SGAI 0.97980.93711.00051.05121.05720.98880.89370.99590.96650.9767
LVGI 1.03230.99690.80680.94010.73281.13551.09390.78842.02320.7971
TATA -0.00690.05540.0248-0.0525-0.0742-0.0387-0.05820.0299-0.0416-0.0135
M-score -2.56-1.86-2.37-2.56-2.90-2.04-2.61-2.18-2.80-2.44

Watsco Inc Quarterly Data

Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14
DSRI 1.11841.05551.01611.00010.98340.91310.92070.96990.960.9859
GMI 0.98841.00671.00911.03061.01171.00170.99680.98790.99380.9957
AQI 0.99461.23231.22321.17421.21010.98130.98230.9740.93470.9473
SGI 1.07241.10991.1081.15241.14131.12961.11161.09081.07991.0612
DEPI 1.13611.01040.9410.8460.80850.80530.88830.96551.22151.7355
SGAI 0.98610.9650.96190.96650.97640.97440.97980.97670.97510.985
LVGI 0.91030.96841.10142.02321.6071.22031.11350.79710.89250.9285
TATA -0.01150.0313-0.041-0.0416-0.0221-0.0186-0.0192-0.0135-0.0335-0.0109
M-score -2.32-2.07-2.50-2.80-2.60-2.63-2.60-2.44-2.57-2.40
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