Prudential Financial 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 Prudential Financial 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 * 1.4836 | + | 0.528 * 1 | + | 0.404 * 0.9882 | + | 0.892 * 0.9365 | + | 0.115 * 1 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0662 | + | 4.679 * -0.011312 | - | 0.327 * 1.3106 |
| = | -2.26 |
* 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$138,419 Mil.
Revenue was 76206.589 + 41514.712 + 65515.243 + 88874.342 = R$272,111 Mil.
Gross Profit was 76206.589 + 41514.712 + 65515.243 + 88874.342 = R$272,111 Mil.
Total Current Assets was R$1,808,002 Mil.
Total Assets was R$3,533,358 Mil.
Property, Plant and Equipment(Net PPE) was R$0 Mil.
Depreciation, Depletion and Amortization(DDA) was R$-332 Mil.
Selling, General, & Admin. Expense(SGA) was R$64,421 Mil.
Total Current Liabilities was R$88,574 Mil.
Long-Term Debt & Capital Lease Obligation was R$98,001 Mil.
Net Income was 6453.037 + -3960.837 + 2480.241 + 7614.973 = R$12,587 Mil.
Non Operating Income was 8844.139 + 972.924 + 5067.263 + 5307.563 = R$20,192 Mil.
Cash Flow from Operations was 5404.479 + 14025.908 + 5940.929 + 6995.15 = R$32,366 Mil.
|
Total Receivables was R$99,626 Mil.
Revenue was 68205.936 + 105868.284 + 57503.398 + 58975.316 = R$290,553 Mil.
Gross Profit was 68205.936 + 105868.284 + 57503.398 + 58975.316 = R$290,553 Mil.
Total Current Assets was R$1,828,305 Mil.
Total Assets was R$3,614,233 Mil.
Property, Plant and Equipment(Net PPE) was R$0 Mil.
Depreciation, Depletion and Amortization(DDA) was R$577 Mil.
Selling, General, & Admin. Expense(SGA) was R$64,516 Mil.
Total Current Liabilities was R$40,804 Mil.
Long-Term Debt & Capital Lease Obligation was R$104,814 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) |
| = | (138419.35 / 272110.886) | / | (99625.882 / 290552.934) |
| = | 0.508687 | / | 0.342884 |
| | = | 1.4836 |
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) |
| = | (290552.934 / 290552.934) | / | (272110.886 / 272110.886) |
| = | 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 - (1808001.701 + 0) / 3533358.475) | / | (1 - (1828305.151 + 0) / 3614232.716) |
| = | 0.488305 | / | 0.494137 |
| | = | 0.9882 |
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 |
| = | 272110.886 | / | 290552.934 |
| | = | 0.9365 |
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)) |
| = | (576.885 / (576.885 + 0)) | / | (-332.306 / (-332.306 + 0)) |
| = | 1 | / | 1 |
| | = | 1 |
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) |
| = | (64421.079 / 272110.886) | / | (64515.998 / 290552.934) |
| = | 0.236746 | / | 0.222046 |
| | = | 1.0662 |
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) |
| = | ((98000.9 + 88573.684) / 3533358.475) | / | ((104813.583 + 40803.967) / 3614232.716) |
| = | 0.052804 | / | 0.04029 |
| | = | 1.3106 |
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 |
| = | (12587.414 - 20191.889 | - | 32366.466) | / | 3533358.475 |
| | = | -0.011312 |
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.
Prudential Financial has a M-score of -2.26 suggests that the company is unlikely to be a manipulator.
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