Heritage Financial 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 Heritage Financial 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 * 1.0746 | + | 0.528 * 1 | + | 0.404 * 1.0213 | + | 0.892 * 0.9793 | + | 0.115 * 0.5549 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.1233 | + | 4.679 * -0.006658 | - | 0.327 * 1.0238 |
| = | -2.53 |
* 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 $19.5 Mil.
Revenue was 50.724 + 61.889 + 63.105 + 68.1 = $243.8 Mil.
Gross Profit was 50.724 + 61.889 + 63.105 + 68.1 = $243.8 Mil.
Total Current Assets was $1,378.8 Mil.
Total Assets was $7,175.0 Mil.
Property, Plant and Equipment(Net PPE) was $74.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $5.6 Mil.
Selling, General, & Admin. Expense(SGA) was $105.3 Mil.
Total Current Liabilities was $200.1 Mil.
Long-Term Debt & Capital Lease Obligation was $21.8 Mil.
Net Income was 6.233 + 18.219 + 16.846 + 20.457 = $61.8 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.0 Mil.
Cash Flow from Operations was 30.959 + 31.101 + 24.066 + 23.397 = $109.5 Mil.
|
Total Receivables was $18.5 Mil.
Revenue was 69.691 + 66.739 + 57.064 + 55.482 = $249.0 Mil.
Gross Profit was 69.691 + 66.739 + 57.064 + 55.482 = $249.0 Mil.
Total Current Assets was $1,453.6 Mil.
Total Assets was $6,980.1 Mil.
Property, Plant and Equipment(Net PPE) was $76.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $3.1 Mil.
Selling, General, & Admin. Expense(SGA) was $95.8 Mil.
Total Current Liabilities was $189.3 Mil.
Long-Term Debt & Capital Lease Obligation was $21.5 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) |
| = | (19.518 / 243.818) | / | (18.547 / 248.976) |
| = | 0.080052 | / | 0.074493 |
| | = | 1.0746 |
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) |
| = | (248.976 / 248.976) | / | (243.818 / 243.818) |
| = | 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 - (1378.844 + 74.899) / 7174.957) | / | (1 - (1453.58 + 76.93) / 6980.1) |
| = | 0.797387 | / | 0.780732 |
| | = | 1.0213 |
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 |
| = | 243.818 | / | 248.976 |
| | = | 0.9793 |
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)) |
| = | (3.091 / (3.091 + 76.93)) | / | (5.604 / (5.604 + 74.899)) |
| = | 0.038627 | / | 0.069612 |
| | = | 0.5549 |
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) |
| = | (105.325 / 243.818) | / | (95.75 / 248.976) |
| = | 0.431982 | / | 0.384575 |
| | = | 1.1233 |
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) |
| = | ((21.765 + 200.059) / 7174.957) | / | ((21.473 + 189.297) / 6980.1) |
| = | 0.030916 | / | 0.030196 |
| | = | 1.0238 |
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 |
| = | (61.755 - 0 | - | 109.523) | / | 7174.957 |
| | = | -0.006658 |
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.
Heritage Financial has a M-score of -2.53 suggests that the company is unlikely to be a manipulator.
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