Apple Beneish M-Score Calculation
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Altman Z-Score) or business trend (Piotroski 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 Apple 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 * 1.1761 | + | 0.528 * 0.9785 | + | 0.404 * 1.1105 | + | 0.892 * 1.0988 | + | 0.115 * 1.0938 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9925 | + | 4.679 * -0.0699 | - | 0.327 * 1.1421 |
| = | -2.56 |
* All numbers are in millions except for per share data and ratio. All numbers are indicated in the company's associated stock exchange currency.
| This Year (Dec20) TTM: | Last Year (Dec19) TTM: |
Accounts Receivable was $27,101 Mil.
Revenue was 111439 + 64698 + 59685 + 58313 = $294,135 Mil.
Gross Profit was 44328 + 24689 + 22680 + 22370 = $114,067 Mil.
Total Current Assets was $154,106 Mil.
Total Assets was $354,054 Mil.
Property, Plant and Equipment(Net PPE) was $37,933 Mil.
Depreciation, Depletion and Amortization(DDA) was $10,906 Mil.
Selling, General, & Admin. Expense(SGA) was $20,350 Mil.
Total Current Liabilities was $132,507 Mil.
Long-Term Debt & Capital Lease Obligation was $99,281 Mil.
Net Income was 28755 + 12673 + 11253 + 11249 = $63,930 Mil.
Non Operating Income was -64 + -8 + -158 + -10 = $-240 Mil.
Cash Flow from Operations was 38763 + 20576 + 16271 + 13311 = $88,921 Mil.
|
Accounts Receivable was $20,970 Mil.
Revenue was 91819 + 64040 + 53809 + 58015 = $267,683 Mil.
Gross Profit was 35217 + 24313 + 20227 + 21821 = $101,578 Mil.
Total Current Assets was $163,231 Mil.
Total Assets was $340,618 Mil.
Property, Plant and Equipment(Net PPE) was $37,031 Mil.
Depreciation, Depletion and Amortization(DDA) was $11,968 Mil.
Selling, General, & Admin. Expense(SGA) was $18,659 Mil.
Total Current Liabilities was $102,161 Mil.
Long-Term Debt & Capital Lease Obligation was $93,078 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Accounts Receivable 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) |
| = | (27101 / 294135) | / | (20970 / 267683) |
| = | 0.09213796 | / | 0.07833893 |
| | = | 1.1761 |
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) |
| = | (101578 / 267683) | / | (114067 / 294135) |
| = | 0.37947124 | / | 0.38780492 |
| | = | 0.9785 |
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 Property, Plant and Equipment to Total Assets.
| AQI | = | (1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) | / | (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1) |
| = | (1 - (154106 + 37933) / 354054) | / | (1 - (163231 + 37031) / 340618) |
| = | 0.45759969 | / | 0.41206278 |
| | = | 1.1105 |
4. SGI = Sales Growth Index
Ratio of Revenue 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 |
| = | 294135 | / | 267683 |
| | = | 1.0988 |
5. DEPI = Depreciation Index
Measured as the ratio of the rate of Depreciation, Depletion and Amortization 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)) |
| = | (11968 / (11968 + 37031)) | / | (10906 / (10906 + 37933)) |
| = | 0.24424988 | / | 0.22330515 |
| | = | 1.0938 |
Note: If the Depreciation, Depletion and Amortization data is not available, we assume that the depreciation rate is constant and set the Depreciation Index to 1.
6. SGAI = Sales, General and Administrative expenses Index
The ratio of Selling, General, & Admin. Expense(SGA) to Sales 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) |
| = | (20350 / 294135) | / | (18659 / 267683) |
| = | 0.06918592 | / | 0.06970558 |
| | = | 0.9925 |
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 in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((99281 + 132507) / 354054) | / | ((93078 + 102161) / 340618) |
| = | 0.6546685 | / | 0.57319049 |
| | = | 1.1421 |
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 |
| = | (63930 - -240 | - | 88921) | / | 354054 |
| | = | -0.0699 |
An M-Score of equal or less than -1.78 suggests that the company is unlikely to be a manipulator. An M-Score of greater than -1.78 signals that the company is likely to be a manipulator.
Apple has a M-score of -2.56 suggests that the company is unlikely to be a manipulator.
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