Protective Life 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 Protective Life 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 * 1.2354 | + | 0.528 * 1 | + | 0.404 * 1.0001 | + | 0.892 * 1.186 | + | 0.115 * 1.4173 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.3859 | + | 4.679 * -0.008969 | - | 0.327 * 0.9124 |
| = | -2.13 |
* 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 (Sep14) TTM: | Last Year (Sep13) TTM: |
Total Receivables was €110 Mil.
Revenue was 890.915 + 850.332 + 788.473 + 815.509 = €3,345 Mil.
Gross Profit was 890.915 + 850.332 + 788.473 + 815.509 = €3,345 Mil.
Total Current Assets was €0 Mil.
Total Assets was €54,749 Mil.
Property, Plant and Equipment(Net PPE) was €41 Mil.
Depreciation, Depletion and Amortization(DDA) was €4 Mil.
Selling, General, & Admin. Expense(SGA) was €1,693 Mil.
Total Current Liabilities was €0 Mil.
Long-Term Debt & Capital Lease Obligation was €2,231 Mil.
Net Income was 92.273 + 79.471 + 60.471 + 86.806 = €319 Mil.
Non Operating Income was 81.782 + 78.701 + 71.605 + 84.754 = €317 Mil.
Cash Flow from Operations was 141.242 + 261.099 + 49.696 + 41.206 = €493 Mil.
|
Total Receivables was €75 Mil.
Revenue was 712.615 + 724.918 + 720.132 + 662.833 = €2,820 Mil.
Gross Profit was 712.615 + 724.918 + 720.132 + 662.833 = €2,820 Mil.
Total Current Assets was €0 Mil.
Total Assets was €43,728 Mil.
Property, Plant and Equipment(Net PPE) was €39 Mil.
Depreciation, Depletion and Amortization(DDA) was €6 Mil.
Selling, General, & Admin. Expense(SGA) was €1,030 Mil.
Total Current Liabilities was €0 Mil.
Long-Term Debt & Capital Lease Obligation was €1,953 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) |
| = | (109.721 / 3345.229) | / | (74.881 / 2820.498) |
| = | 0.032799 | / | 0.026549 |
| | = | 1.2354 |
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) |
| = | (2820.498 / 2820.498) | / | (3345.229 / 3345.229) |
| = | 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 - (0 + 41.081) / 54749.304) | / | (1 - (0 + 38.751) / 43728.462) |
| = | 0.99925 | / | 0.999114 |
| | = | 1.0001 |
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 |
| = | 3345.229 | / | 2820.498 |
| | = | 1.186 |
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)) |
| = | (5.963 / (5.963 + 38.751)) | / | (4.267 / (4.267 + 41.081)) |
| = | 0.133359 | / | 0.094095 |
| | = | 1.4173 |
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) |
| = | (1692.806 / 3345.229) | / | (1029.83 / 2820.498) |
| = | 0.506036 | / | 0.365123 |
| | = | 1.3859 |
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) |
| = | ((2230.583 + 0) / 54749.304) | / | ((1952.649 + 0) / 43728.462) |
| = | 0.040742 | / | 0.044654 |
| | = | 0.9124 |
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 |
| = | (319.021 - 316.842 | - | 493.243) | / | 54749.304 |
| | = | -0.008969 |
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.
Protective Life has a M-score of -2.13 suggests that the company is unlikely to be a manipulator.
Protective Life (FRA:PV7) Business Description
Traded in Other Exchanges
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Protective Life Corporation, a Delaware corporation was founded in 1907. A holding company, whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. The Company's operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, Asset Protection and Corporate and Other. The Life Marketing segment markets universal life, variable universal life, bank-owned life insurance and level premium term insurance products on a national basis mainly through networks of independent insurance agents and brokers, stockbrokers, and independent marketing organizations. The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's main focus is on life insurance policies and annuity products that were sold to individuals. The Annuities segment markets fixed and variable annuity products. These products are mainly sold through broker-dealers, but are also sold through financial institutions and independent agents and brokers. The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank and markets guaranteed investment contracts (GICs) to 401(k) and other qualified retirement savings plans. The Asset Protection segment mainly markets extended service contracts and credit life and disability insurance to protect consumers' investments in automobiles, watercraft, and recreational vehicles. In addition, the segment markets a guaranteed asset protection product and an inventory protection product. The Company has an additional segment referred to as Corporate and Other which earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations. The Company encounters competition in all lines of business from other insurance companies, many of which have greater financial resources and higher ratings than the Company and which might have a greater market share, offer products, services or features, assume a greater level of risk, have lower operating or financing costs, or have different profitability expectations than the Company. The Company also faces competition from other providers of financial services. The Company and its subsidiaries are subject to government regulation in each of the states in which it conducts business.
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