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GuruFocus has detected 3 Warning Signs with Fortune Brands Home & Security Inc $FBHS.
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Fortune Brands Home & Security Inc (NYSE:FBHS)
Beneish M-Score
-2.59 (As of Today)

The zones of discrimination for M-Score is as such:

An M-Score of less than -2.22 suggests that the company is not an accounting manipulator.
An M-Score of greater than -2.22 signals that the company is likely an accounting manipulator.

Fortune Brands Home & Security Inc has a M-score of -2.59 suggests that the company is not a manipulator.

FBHS' s Beneish M-Score Range Over the Past 10 Years
Min: -2.81   Max: -2.35
Current: -2.59

-2.81
-2.35

During the past 8 years, the highest Beneish M-Score of Fortune Brands Home & Security Inc was -2.35. The lowest was -2.81. And the median was -2.60.


Definition

The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Z-Score) or business trend (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 Fortune Brands Home & Security Inc 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 * 1.0049+0.528 * 0.9531+0.404 * 1.0263+0.892 * 1.0697+0.115 * 1.0268
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9973+4.679 * -0.0405-0.327 * 0.9189
=-2.59

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Mar17) TTM:Last Year (Mar16) TTM:
Accounts Receivable was $565 Mil.
Revenue was 1186.8 + 1301.6 + 1279 + 1297.8 = $5,065 Mil.
Gross Profit was 417 + 474.1 + 478 + 474.7 = $1,844 Mil.
Total Current Assets was $1,456 Mil.
Total Assets was $5,134 Mil.
Property, Plant and Equipment(Net PPE) was $666 Mil.
Depreciation, Depletion and Amortization(DDA) was $124 Mil.
Selling, General & Admin. Expense(SGA) was $1,148 Mil.
Total Current Liabilities was $708 Mil.
Long-Term Debt was $1,492 Mil.
Net Income was 77.4 + 103.6 + 123.4 + 125.2 = $430 Mil.
Non Operating Income was 0.8 + -1.6 + -0.6 + 0.4 = $-1 Mil.
Cash Flow from Operations was -17.9 + 269.9 + 215.6 + 171.1 = $639 Mil.
Accounts Receivable was $526 Mil.
Revenue was 1106.5 + 1224.7 + 1238.8 + 1165.1 = $4,735 Mil.
Gross Profit was 377.8 + 420.1 + 434.5 + 410.4 = $1,643 Mil.
Total Current Assets was $1,481 Mil.
Total Assets was $4,943 Mil.
Property, Plant and Equipment(Net PPE) was $636 Mil.
Depreciation, Depletion and Amortization(DDA) was $122 Mil.
Selling, General & Admin. Expense(SGA) was $1,076 Mil.
Total Current Liabilities was $685 Mil.
Long-Term Debt was $1,619 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in 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)
=(564.9 / 5065.2) / (525.5 / 4735.1)
=0.1115257 / 0.1109797
=1.0049

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)
=(1642.8 / 4735.1) / (1843.8 / 5065.2)
=0.34694093 / 0.36401327
=0.9531

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 plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (1456.1 + 665.7) / 5134.1) / (1 - (1481.3 + 635.7) / 4942.8)
=0.58672406 / 0.57170025
=1.0263

4. SGI = Sales Growth Index

Ratio of sales 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
=5065.2 / 4735.1
=1.0697

5. DEPI = Depreciation Index

Measured as the ratio of the rate of depreciation 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))
=(121.9 / (121.9 + 635.7)) / (123.7 / (123.7 + 665.7))
=0.16090285 / 0.15670129
=1.0268

6. SGAI = Sales, General and Administrative expenses Index

The ratio of SGA expenses 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)
=(1148.3 / 5065.2) / (1076.4 / 4735.1)
=0.22670378 / 0.2273236
=0.9973

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$sgai= in leverage

LVGI=((LTD_t + CurrentLiabilities_t) / TotalAssets_t) / ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1)
=((1491.5 + 707.8) / 5134.1) / ((1619.2 + 684.9) / 4942.8)
=0.42837109 / 0.46615279
=0.9189

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
=(429.6 - -1 - 638.7) / 5134.1
=-0.0405

An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.

Fortune Brands Home & Security Inc has a M-score of -2.59 suggests that the company will not be a manipulator.


Related Terms

Altman Z-Score, Piotroski F-Score, Accounts Receivable, Revenue, Gross Profit, Total Current Assets, Total Assets, Property, Plant and Equipment, Depreciation, Depletion and Amortization, Selling, General & Admin. Expense, Total Current Liabilities, Long-Term Debt, Net Income, Non Operating Income, Cash Flow from Operations


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Fortune Brands Home & Security Inc Annual Data

Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.1710.86351.08750.95991.0066
GMI 0.9010.95221.02460.98590.9542
AQI 0.92951.03390.9581.06241.0149
SGI 0.94181.22211.04761.1411.0885
DEPI 1.05471.02521.04580.99870.9913
SGAI 1.02670.91960.91770.97340.9908
LVGI 0.88471.08551.2721.19221.1221
TATA -0.0425-0.0151-0.0264-0.0225-0.046
M-score -2.61-2.50-2.55-2.54-2.67

Fortune Brands Home & Security Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.08750.92880.97060.90820.95990.94780.85920.91431.00661.0049
GMI 1.02461.02071.01141.01180.98590.9820.97260.95930.95420.9531
AQI 0.9580.95961.04131.04841.06241.05920.99381.03571.01491.0263
SGI 1.04761.0641.10381.14741.1411.16191.15541.11691.08851.0697
DEPI 1.04580.95371.00981.02620.99870.95980.91370.9370.99131.0268
SGAI 0.91770.93810.97590.96850.97340.9630.93620.95590.99080.9973
LVGI 1.2721.29561.40991.24541.19221.41821.091.08891.12210.9189
TATA -0.0264-0.0478-0.0412-0.0308-0.0225-0.0307-0.0308-0.0257-0.046-0.0405
M-score -2.55-2.81-2.71-2.62-2.54-2.65-2.66-2.61-2.67-2.59
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