Berkshire Hathaway 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 Berkshire Hathaway 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 * 0.9776 | + | 0.528 * 1 | + | 0.404 * 1.0116 | + | 0.892 * 0.9656 | + | 0.115 * 0.9997 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0756 | + | 4.679 * -0.171622 | - | 0.327 * 0.9227 |
| = | -3.32 |
* 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 (Dec24) TTM: | Last Year (Dec23) TTM: |
Total Receivables was $48,390 Mil.
Revenue was 101468 + 113509 + 117510 + 91745 = $424,232 Mil.
Gross Profit was 101468 + 113509 + 117510 + 91745 = $424,232 Mil.
Total Current Assets was $0 Mil.
Total Assets was $1,153,881 Mil.
Property, Plant and Equipment(Net PPE) was $222,929 Mil.
Depreciation, Depletion and Amortization(DDA) was $12,855 Mil.
Selling, General, & Admin. Expense(SGA) was $32,711 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt & Capital Lease Obligation was $122,324 Mil.
Net Income was 19694 + 26251 + 30348 + 12702 = $88,995 Mil.
Non Operating Income was 64784 + 63661 + 64968 + 63021 = $256,434 Mil.
Cash Flow from Operations was 4621 + 1803 + 13602 + 10566 = $30,592 Mil.
|
Total Receivables was $51,260 Mil.
Revenue was 130190 + 63432 + 125564 + 120151 = $439,337 Mil.
Gross Profit was 130190 + 63432 + 125564 + 120151 = $439,337 Mil.
Total Current Assets was $0 Mil.
Total Assets was $1,069,978 Mil.
Property, Plant and Equipment(Net PPE) was $216,593 Mil.
Depreciation, Depletion and Amortization(DDA) was $12,486 Mil.
Selling, General, & Admin. Expense(SGA) was $31,495 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt & Capital Lease Obligation was $122,936 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) |
| = | (48390 / 424232) | / | (51260 / 439337) |
| = | 0.114065 | / | 0.116676 |
| | = | 0.9776 |
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) |
| = | (439337 / 439337) | / | (424232 / 424232) |
| = | 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 - (0 + 222929) / 1153881) | / | (1 - (0 + 216593) / 1069978) |
| = | 0.806801 | / | 0.797572 |
| | = | 1.0116 |
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 |
| = | 424232 | / | 439337 |
| | = | 0.9656 |
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)) |
| = | (12486 / (12486 + 216593)) | / | (12855 / (12855 + 222929)) |
| = | 0.054505 | / | 0.05452 |
| | = | 0.9997 |
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) |
| = | (32711 / 424232) | / | (31495 / 439337) |
| = | 0.077106 | / | 0.071688 |
| | = | 1.0756 |
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) |
| = | ((122324 + 0) / 1153881) | / | ((122936 + 0) / 1069978) |
| = | 0.106011 | / | 0.114896 |
| | = | 0.9227 |
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 |
| = | (88995 - 256434 | - | 30592) | / | 1153881 |
| | = | -0.171622 |
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.
Berkshire Hathaway has a M-score of -3.32 suggests that the company is unlikely to be a manipulator.
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