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GuruFocus has detected 5 Warning Signs with A.O. Smith Corp $AOS.
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A.O. Smith Corp (NYSE:AOS)
Beneish M-Score
-2.51 (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.

A.O. Smith Corp has a M-score of -2.51 suggests that the company is not a manipulator.

AOS' s Beneish M-Score Range Over the Past 10 Years
Min: -5.23   Max: 1.92
Current: -2.51

-5.23
1.92

During the past 13 years, the highest Beneish M-Score of A.O. Smith Corp was 1.92. The lowest was -5.23. And the median was -2.58.


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 A.O. Smith Corp 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 * 1.0556+0.528 * 0.9827+0.404 * 1.0098+0.892 * 1.0916+0.115 * 1.0027
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0024+4.679 * -0.0264-0.327 * 1.1141
=-2.51

* 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 $584 Mil.
Revenue was 740 + 698.1 + 683.9 + 667 = $2,789 Mil.
Gross Profit was 302.3 + 289.6 + 283.3 + 283.7 = $1,159 Mil.
Total Current Assets was $1,606 Mil.
Total Assets was $2,940 Mil.
Property, Plant and Equipment(Net PPE) was $468 Mil.
Depreciation, Depletion and Amortization(DDA) was $66 Mil.
Selling, General & Admin. Expense(SGA) was $682 Mil.
Total Current Liabilities was $721 Mil.
Long-Term Debt was $362 Mil.
Net Income was 87.7 + 82.7 + 83.2 + 87.1 = $341 Mil.
Non Operating Income was 2.4 + 3.2 + 1.9 + 2.3 = $10 Mil.
Cash Flow from Operations was -11.5 + 183 + 108.5 + 128.6 = $409 Mil.
Accounts Receivable was $507 Mil.
Revenue was 636.9 + 639.4 + 625.1 + 653.5 = $2,555 Mil.
Gross Profit was 262.7 + 262.6 + 255.6 + 262.4 = $1,043 Mil.
Total Current Assets was $1,426 Mil.
Total Assets was $2,651 Mil.
Property, Plant and Equipment(Net PPE) was $451 Mil.
Depreciation, Depletion and Amortization(DDA) was $64 Mil.
Selling, General & Admin. Expense(SGA) was $623 Mil.
Total Current Liabilities was $602 Mil.
Long-Term Debt was $274 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)
=(584.1 / 2789) / (506.9 / 2554.9)
=0.2094299 / 0.19840307
=1.0556

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)
=(1043.3 / 2554.9) / (1158.9 / 2789)
=0.40835258 / 0.41552528
=0.9827

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 - (1605.5 + 467.6) / 2940.2) / (1 - (1425.9 + 450.6) / 2650.6)
=0.29491191 / 0.29204708
=1.0098

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
=2789 / 2554.9
=1.0916

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))
=(63.6 / (63.6 + 450.6)) / (65.8 / (65.8 + 467.6))
=0.12368728 / 0.12335958
=1.0027

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)
=(681.6 / 2789) / (622.9 / 2554.9)
=0.24438867 / 0.24380602
=1.0024

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)
=((362.2 + 720.5) / 2940.2) / ((274.1 + 602) / 2650.6)
=0.36824026 / 0.33052894
=1.1141

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
=(340.7 - 9.8 - 408.6) / 2940.2
=-0.0264

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.

A.O. Smith Corp has a M-score of -2.51 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.

A.O. Smith Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.02460.87851.2711.04951.02381.01850.97090.94750.97960.977
GMI 0.96661.02890.75160.95890.99930.89140.93580.9850.91620.9553
AQI 1.01191.0111.37530.90840.77461.02270.92510.91970.97491.0069
SGI 1.06980.99680.59651.08321.14851.13381.11061.09391.07661.0589
DEPI 0.90311.0111.0250.97761.05120.95111.03041.07910.98461.0085
SGAI 1.04730.98821.36791.15190.89151.06591.04830.99710.99151.0189
LVGI 0.97260.94980.83941.0071.10230.78921.00131.00861.04351.1065
TATA -0.07-0.0372-0.0906-0.00520.0967-0.0116-0.0437-0.0244-0.0303-0.0448
M-score -2.75-2.73-3.00-2.47-1.97-2.39-2.68-2.59-2.64-2.72

A.O. Smith Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 0.94750.98691.04560.91560.97960.96910.90251.03750.9771.0556
GMI 0.9850.97660.95260.9320.91620.90240.91310.93310.95530.9827
AQI 0.91970.9020.90980.92740.97490.98760.98851.05711.00691.0098
SGI 1.09391.10291.1061.10311.07661.05471.03551.04091.05891.0916
DEPI 1.07911.05771.0281.02530.98460.99791.01251.0151.00851.0027
SGAI 0.99710.99651.01981.00640.99151.00370.98651.00031.01891.0024
LVGI 1.00861.05411.00911.0071.04350.99621.02061.06761.10651.1141
TATA -0.0244-0.0152-0.0039-0.0347-0.0303-0.0342-0.0529-0.0227-0.0448-0.0264
M-score -2.59-2.53-2.43-2.69-2.64-2.68-2.84-2.55-2.72-2.51
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