HCA Healthcare 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 HCA Healthcare 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 * | + | 0.528 * | + | 0.404 * | + | 0.892 * | + | 0.115 * |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * | + | 4.679 * | - | 0.327 * |
| = | |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Sep20) TTM: | Last Year (Sep19) TTM: |
Accounts Receivable was $6,433 Mil.
Revenue was 13311 + 11068 + 12861 + 13523 = $50,763 Mil.
Gross Profit was 5086 + 3990 + 4620 + 5186 = $18,882 Mil.
Total Current Assets was $16,266 Mil.
Total Assets was $51,016 Mil.
Property, Plant and Equipment(Net PPE) was $24,913 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,753 Mil.
Selling, General, & Admin. Expense(SGA) was $0 Mil.
Total Current Liabilities was $14,379 Mil.
Long-Term Debt & Capital Lease Obligation was $32,427 Mil.
Net Income was 668 + 1079 + 581 + 1071 = $3,399 Mil.
Non Operating Income was 54 + -26 + -281 + 21 = $-232 Mil.
Cash Flow from Operations was 2717 + 8723 + 1375 + 2505 = $15,320 Mil.
|
Accounts Receivable was $7,131 Mil.
Revenue was 12694 + 12602 + 12517 + 12274 = $50,087 Mil.
Gross Profit was 4633 + 4647 + 4829 + 4787 = $18,896 Mil.
Total Current Assets was $10,769 Mil.
Total Assets was $43,912 Mil.
Property, Plant and Equipment(Net PPE) was $23,772 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,483 Mil.
Selling, General, & Admin. Expense(SGA) was $0 Mil.
Total Current Liabilities was $7,124 Mil.
Long-Term Debt & Capital Lease Obligation was $35,537 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Accounts Receivable 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) |
| = | (6433 / 50763) | / | (7131 / 50087) |
| = | 0.12672616 | / | 0.14237227 |
| | = | |
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) |
| = | (18896 / 50087) | / | (18882 / 50763) |
| = | 0.37726356 | / | 0.37196383 |
| | = | |
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 - (16266 + 24913) / 51016) | / | (1 - (10769 + 23772) / 43912) |
| = | 0.19282186 | / | 0.21340408 |
| | = | |
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 |
| = | 50763 | / | 50087 |
| | = | |
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)) |
| = | (2483 / (2483 + 23772)) | / | (2753 / (2753 + 24913)) |
| = | 0.09457246 | / | 0.09950842 |
| | = | |
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) |
| = | (0 / 50763) | / | (0 / 50087) |
| = | 0 | / | 0 |
| | = | |
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) |
| = | ((32427 + 14379) / 51016) | / | ((35537 + 7124) / 43912) |
| = | 0.91747687 | / | 0.9715112 |
| | = | |
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 |
| = | (3399 - -232 | - | 15320) | / | 51016 |
| | = | -0.2291 |
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.
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