Popular 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 Popular 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 * 1.1887 | + | 0.528 * 1 | + | 0.404 * 1.0165 | + | 0.892 * 0.9002 | + | 0.115 * 1.0309 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.3016 | + | 4.679 * -0.002053 | - | 0.327 * 0.8336 |
| = | -2.39 |
* 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 (Dec23) TTM: | Last Year (Dec22) TTM: |
Total Receivables was $492 Mil.
Revenue was 673.462 + 655.67 + 655.338 + 659.708 = $2,644 Mil.
Gross Profit was 673.462 + 655.67 + 655.338 + 659.708 = $2,644 Mil.
Total Current Assets was $24,568 Mil.
Total Assets was $70,758 Mil.
Property, Plant and Equipment(Net PPE) was $702 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General, & Admin. Expense(SGA) was $979 Mil.
Total Current Liabilities was $531 Mil.
Long-Term Debt & Capital Lease Obligation was $1,140 Mil.
Net Income was 94.594 + 136.609 + 151.16 + 158.979 = $541 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 213.589 + 121.671 + 198.306 + 153.046 = $687 Mil.
|
Total Receivables was $460 Mil.
Revenue was 685.244 + 973.745 + 660.236 + 618.051 = $2,937 Mil.
Gross Profit was 685.244 + 973.745 + 660.236 + 618.051 = $2,937 Mil.
Total Current Assets was $24,219 Mil.
Total Assets was $67,638 Mil.
Property, Plant and Equipment(Net PPE) was $643 Mil.
Depreciation, Depletion and Amortization(DDA) was $58 Mil.
Selling, General, & Admin. Expense(SGA) was $835 Mil.
Total Current Liabilities was $867 Mil.
Long-Term Debt & Capital Lease Obligation was $1,049 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) |
| = | (492.183 / 2644.178) | / | (459.953 / 2937.276) |
| = | 0.186138 | / | 0.156592 |
| | = | 1.1887 |
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) |
| = | (2937.276 / 2937.276) | / | (2644.178 / 2644.178) |
| = | 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 - (24567.733 + 702.483) / 70758.155) | / | (1 - (24219.22 + 643.168) / 67637.917) |
| = | 0.642865 | / | 0.632419 |
| | = | 1.0165 |
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 |
| = | 2644.178 | / | 2937.276 |
| | = | 0.9002 |
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)) |
| = | (58.382 / (58.382 + 643.168)) | / | (61.687 / (61.687 + 702.483)) |
| = | 0.083219 | / | 0.080724 |
| | = | 1.0309 |
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) |
| = | (978.956 / 2644.178) | / | (835.469 / 2937.276) |
| = | 0.370231 | / | 0.284437 |
| | = | 1.3016 |
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) |
| = | ((1139.672 + 530.908) / 70758.155) | / | ((1048.737 + 867.014) / 67637.917) |
| = | 0.02361 | / | 0.028324 |
| | = | 0.8336 |
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 |
| = | (541.342 - 0 | - | 686.612) | / | 70758.155 |
| | = | -0.002053 |
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.
Popular has a M-score of -2.39 suggests that the company is unlikely to be a manipulator.
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