Morgan Stanley 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 Morgan Stanley 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 * 0.9709 | + | 0.528 * 1 | + | 0.404 * 1.1037 | + | 0.892 * 0.9813 | + | 0.115 * 1.0043 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.025 | + | 4.679 * 0.036283 | - | 0.327 * 1.0362 |
| = | -2.33 |
* 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 R$392,498 Mil.
Revenue was 58949.494 + 61328.777 + 61069.253 + 71024.47 = R$252,372 Mil.
Gross Profit was 58949.494 + 61328.777 + 61069.253 + 71024.47 = R$252,372 Mil.
Total Current Assets was R$791,264 Mil.
Total Assets was R$5,848,857 Mil.
Property, Plant and Equipment(Net PPE) was R$113 Mil.
Depreciation, Depletion and Amortization(DDA) was R$21,140 Mil.
Selling, General, & Admin. Expense(SGA) was R$123,499 Mil.
Total Current Liabilities was R$1,063,590 Mil.
Long-Term Debt & Capital Lease Obligation was R$1,310,535 Mil.
Net Income was 7432.997 + 11892.39 + 10590.773 + 15521.628 = R$45,438 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = R$0 Mil.
Cash Flow from Operations was -86981.25 + 18505.309 + -46915.864 + -51382.839 = R$-166,775 Mil.
|
Total Receivables was R$411,974 Mil.
Revenue was 62409.769 + 63652.06 + 61854.516 + 69266.512 = R$257,183 Mil.
Gross Profit was 62409.769 + 63652.06 + 61854.516 + 69266.512 = R$257,183 Mil.
Total Current Assets was R$1,340,640 Mil.
Total Assets was R$6,190,784 Mil.
Property, Plant and Equipment(Net PPE) was R$21 Mil.
Depreciation, Depletion and Amortization(DDA) was R$20,534 Mil.
Selling, General, & Admin. Expense(SGA) was R$122,783 Mil.
Total Current Liabilities was R$1,160,644 Mil.
Long-Term Debt & Capital Lease Obligation was R$1,264,566 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) |
| = | (392498.479 / 252371.994) | / | (411973.716 / 257182.857) |
| = | 1.555238 | / | 1.601871 |
| | = | 0.9709 |
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) |
| = | (257182.857 / 257182.857) | / | (252371.994 / 252371.994) |
| = | 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 - (791263.802 + 112.695) / 5848856.96) | / | (1 - (1340640.314 + 20.982) / 6190783.686) |
| = | 0.864696 | / | 0.783442 |
| | = | 1.1037 |
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 |
| = | 252371.994 | / | 257182.857 |
| | = | 0.9813 |
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)) |
| = | (20533.96 / (20533.96 + 20.982)) | / | (21139.75 / (21139.75 + 112.695)) |
| = | 0.998979 | / | 0.994697 |
| | = | 1.0043 |
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) |
| = | (123499.165 / 252371.994) | / | (122783.291 / 257182.857) |
| = | 0.489354 | / | 0.477416 |
| | = | 1.025 |
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) |
| = | ((1310534.806 + 1063589.786) / 5848856.96) | / | ((1264566.277 + 1160644.412) / 6190783.686) |
| = | 0.405913 | / | 0.391745 |
| | = | 1.0362 |
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 |
| = | (45437.788 - 0 | - | -166774.644) | / | 5848856.96 |
| | = | 0.036283 |
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.
Morgan Stanley has a M-score of -2.33 suggests that the company is unlikely to be a manipulator.
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