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GuruFocus has detected 4 Warning Signs with Fabrinet $FN.
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Fabrinet (NYSE:FN)
Beneish M-Score
-1.19 (As of Today)

Warning Sign:

Beneish M-Score -1.19 higher than -2.22, which implies that it might have manipulated its financial results.

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.

Fabrinet has a M-score of -1.19 signals that the company is a manipulator.

FN' s Beneish M-Score Range Over the Past 10 Years
Min: -3.43   Max: -1.19
Current: -1.19

-3.43
-1.19

During the past 11 years, the highest Beneish M-Score of Fabrinet was -1.19. The lowest was -3.43. And the median was -2.26.


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 Fabrinet 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 * 0.9966+0.528 * 1.0043+0.404 * 2.952+0.892 * 1.4627+0.115 * 1.0262
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.8769+4.679 * 0.0234-0.327 * 1.1358
=-1.19

* 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 $251 Mil.
Revenue was 366.837 + 351.156 + 332.043 + 276.388 = $1,326 Mil.
Gross Profit was 44.046 + 43.046 + 39.608 + 33.842 = $161 Mil.
Total Current Assets was $772 Mil.
Total Assets was $1,005 Mil.
Property, Plant and Equipment(Net PPE) was $216 Mil.
Depreciation, Depletion and Amortization(DDA) was $22 Mil.
Selling, General & Admin. Expense(SGA) was $62 Mil.
Total Current Liabilities was $313 Mil.
Long-Term Debt was $27 Mil.
Net Income was 21.656 + 25.292 + 22.766 + 19.669 = $89 Mil.
Non Operating Income was -3.594 + 2.092 + 1.8 + -0.56 = $-0 Mil.
Cash Flow from Operations was 40.636 + 20.754 + -1.002 + 5.732 = $66 Mil.
Accounts Receivable was $172 Mil.
Revenue was 250.888 + 233.038 + 216.433 + 206.456 = $907 Mil.
Gross Profit was 31.177 + 28.493 + 26.011 + 24.549 = $110 Mil.
Total Current Assets was $604 Mil.
Total Assets was $769 Mil.
Property, Plant and Equipment(Net PPE) was $160 Mil.
Depreciation, Depletion and Amortization(DDA) was $16 Mil.
Selling, General & Admin. Expense(SGA) was $49 Mil.
Total Current Liabilities was $229 Mil.
Long-Term Debt was $0 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)
=(250.922 / 1326.424) / (172.129 / 906.815)
=0.18917179 / 0.18981711
=0.9966

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)
=(110.23 / 906.815) / (160.542 / 1326.424)
=0.12155732 / 0.1210337
=1.0043

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 - (771.578 + 216.378) / 1004.685) / (1 - (603.754 + 160.441) / 768.53)
=0.01665099 / 0.00564064
=2.952

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
=1326.424 / 906.815
=1.4627

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))
=(16.418 / (16.418 + 160.441)) / (21.52 / (21.52 + 216.378))
=0.09283101 / 0.09045894
=1.0262

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)
=(62.408 / 1326.424) / (48.653 / 906.815)
=0.04704981 / 0.05365262
=0.8769

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)
=((27.121 + 312.814) / 1004.685) / ((0 + 228.944) / 768.53)
=0.33834983 / 0.29789859
=1.1358

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
=(89.383 - -0.262 - 66.12) / 1004.685
=0.0234

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.

Fabrinet has a M-score of -1.19 signals that the company is likely to 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.

Fabrinet Annual Data

Jun07Jun08Jun09Jun10Jun11Jun12Jun13Jun14Jun15Jun16
DSRI 0.78861.43470.81320.80821.16891.1511
GMI 0.99851.16221.01320.98810.96520.9272
AQI 1.17240.56010.85820.97561.42380.7753
SGI 1.47030.75951.1361.05661.14121.2626
DEPI 1.14691.20440.94930.96241.17180.9507
SGAI 1.04191.35050.89391.01331.28640.9702
LVGI 0.80341.49690.64260.81451.18791.2375
TATA 0.0554-0.13150.04140.0432-0.01310.0191
M-score -1.85-3.20-2.26-2.37-2.20-2.22

Fabrinet Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 0.80660.94411.16891.12451.18181.14981.15111.11581.14110.9966
GMI 1.00280.97410.96520.9390.91180.91630.92720.95590.97651.0043
AQI 1.13351.22841.42381.48631.00720.84450.77531.50592.00962.952
SGI 1.05981.07311.14121.1511.19841.2471.26261.36431.43191.4627
DEPI 0.9671.12671.17181.13461.11570.90050.95071.08571.03251.0262
SGAI 1.16291.20241.28641.28021.12091.06660.97020.89890.87440.8769
LVGI 0.90321.03321.18791.17571.20321.1071.23751.1821.14961.1358
TATA 0.0289-0.0116-0.01310.0050.00520.00350.01910.03420.04120.0234
M-score -2.41-2.47-2.20-2.13-2.23-2.27-2.22-1.74-1.40-1.19
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