L&T Finance 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 L&T Finance 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 | + | 0.528 * 1 | + | 0.404 * 1.0385 | + | 0.892 * 1.2046 | + | 0.115 * 2.2538 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0 | + | 4.679 * 0.016031 | - | 0.327 * 0.9592 |
| = | -1.88 |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
| This Year (Mar24) TTM: | Last Year (Mar23) TTM: |
Total Receivables was ₹0 Mil.
Revenue was ₹78,593 Mil.
Gross Profit was ₹78,593 Mil.
Total Current Assets was ₹46,760 Mil.
Total Assets was ₹1,027,176 Mil.
Property, Plant and Equipment(Net PPE) was ₹4,098 Mil.
Depreciation, Depletion and Amortization(DDA) was ₹1,148 Mil.
Selling, General, & Admin. Expense(SGA) was ₹0 Mil.
Total Current Liabilities was ₹14,011 Mil.
Long-Term Debt & Capital Lease Obligation was ₹766,035 Mil.
Net Income was ₹23,201 Mil.
Gross Profit was ₹0 Mil.
Cash Flow from Operations was ₹6,735 Mil.
|
Total Receivables was ₹0 Mil.
Revenue was ₹65,242 Mil.
Gross Profit was ₹65,242 Mil.
Total Current Assets was ₹89,041 Mil.
Total Assets was ₹1,063,621 Mil.
Property, Plant and Equipment(Net PPE) was ₹1,144 Mil.
Depreciation, Depletion and Amortization(DDA) was ₹1,112 Mil.
Selling, General, & Admin. Expense(SGA) was ₹6,630 Mil.
Total Current Liabilities was ₹10,999 Mil.
Long-Term Debt & Capital Lease Obligation was ₹831,049 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total 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) |
| = | (0 / 78592.6) | / | (0 / 65242.3) |
| = | 0 | / | 0 |
| | = | 1 |
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) |
| = | (65242.3 / 65242.3) | / | (78592.6 / 78592.6) |
| = | 1 | / | 1 |
| | = | 1 |
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 - (46760.2 + 4098.2) / 1027175.5) | / | (1 - (89040.7 + 1143.61) / 1063621.4) |
| = | 0.950487 | / | 0.91521 |
| | = | 1.0385 |
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 |
| = | 78592.6 | / | 65242.3 |
| | = | 1.2046 |
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)) |
| = | (1112.4 / (1112.4 + 1143.61)) | / | (1147.7 / (1147.7 + 4098.2)) |
| = | 0.493083 | / | 0.21878 |
| | = | 2.2538 |
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) |
| = | (0 / 78592.6) | / | (6629.8 / 65242.3) |
| = | 0 | / | 0.101618 |
| | = | 0 |
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) |
| = | ((766034.5 + 14010.9) / 1027175.5) | / | ((831049 + 10998.7) / 1063621.4) |
| = | 0.759408 | / | 0.79168 |
| | = | 0.9592 |
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 |
| = | (23201 - 0 | - | 6734.7) | / | 1027175.5 |
| | = | 0.016031 |
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.
L&T Finance has a M-score of -1.88 suggests that the company is unlikely to be a manipulator.
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