Wells Fargo 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 Wells Fargo 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 * 1.1031 | + | 0.528 * 1 | + | 0.404 * 0.943 | + | 0.892 * 2.364 | + | 0.115 * 1.0777 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9593 | + | 4.679 * -0.011246 | - | 0.327 * 1.0699 |
| = | -1.25 |
* 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 ARS19,394,364 Mil.
Revenue was 7392558.007 + 7298907.351 + 4927919.961 + 4095014.045 = ARS23,714,399 Mil.
Gross Profit was 7392558.007 + 7298907.351 + 4927919.961 + 4095014.045 = ARS23,714,399 Mil.
Total Current Assets was ARS150,344,948 Mil.
Total Assets was ARS697,620,949 Mil.
Property, Plant and Equipment(Net PPE) was ARS6,583,196 Mil.
Depreciation, Depletion and Amortization(DDA) was ARS1,795,522 Mil.
Selling, General, & Admin. Expense(SGA) was ARS10,449,443 Mil.
Total Current Liabilities was ARS29,996,573 Mil.
Long-Term Debt & Capital Lease Obligation was ARS74,939,268 Mil.
Net Income was 1244006.001 + 2018161.706 + 1185119.991 + 985972.073 = ARS5,433,260 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = ARS0 Mil.
Cash Flow from Operations was 6570922.006 + 5425974.899 + -181199.999 + 1463055.334 = ARS13,278,752 Mil.
|
Total Receivables was ARS7,437,457 Mil.
Revenue was 3358700.007 + 2718695.66 + 2050423.228 + 1903491.785 = ARS10,031,311 Mil.
Gross Profit was 3358700.007 + 2718695.66 + 2050423.228 + 1903491.785 = ARS10,031,311 Mil.
Total Current Assets was ARS53,164,161 Mil.
Total Assets was ARS315,352,994 Mil.
Property, Plant and Equipment(Net PPE) was ARS3,013,844 Mil.
Depreciation, Depletion and Amortization(DDA) was ARS905,073 Mil.
Selling, General, & Admin. Expense(SGA) was ARS4,607,933 Mil.
Total Current Liabilities was ARS15,017,751 Mil.
Long-Term Debt & Capital Lease Obligation was ARS29,316,955 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) |
| = | (19394364.017 / 23714399.364) | / | (7437456.744 / 10031310.68) |
| = | 0.817831 | / | 0.741424 |
| | = | 1.1031 |
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) |
| = | (10031310.68 / 10031310.68) | / | (23714399.364 / 23714399.364) |
| = | 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 - (150344948.135 + 6583196.006) / 697620948.628) | / | (1 - (53164160.629 + 3013843.967) / 315352994.274) |
| = | 0.775052 | / | 0.821857 |
| | = | 0.943 |
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 |
| = | 23714399.364 | / | 10031310.68 |
| | = | 2.364 |
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)) |
| = | (905072.953 / (905072.953 + 3013843.967)) | / | (1795521.769 / (1795521.769 + 6583196.006)) |
| = | 0.23095 | / | 0.214296 |
| | = | 1.0777 |
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) |
| = | (10449442.718 / 23714399.364) | / | (4607932.528 / 10031310.68) |
| = | 0.440637 | / | 0.459355 |
| | = | 0.9593 |
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) |
| = | ((74939268.067 + 29996573.027) / 697620948.628) | / | ((29316954.689 + 15017751.285) / 315352994.274) |
| = | 0.15042 | / | 0.140588 |
| | = | 1.0699 |
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 |
| = | (5433259.771 - 0 | - | 13278752.24) | / | 697620948.628 |
| | = | -0.011246 |
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.
Wells Fargo has a M-score of -1.25 signals that the company is likely to be a manipulator.
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