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GuruFocus has detected 5 Warning Signs with Kratos Defense & Security Solutions Inc $KTOS.
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Kratos Defense & Security Solutions Inc (NAS:KTOS)
Beneish M-Score
-2.54 (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.

Kratos Defense & Security Solutions Inc has a M-score of -2.54 suggests that the company is not a manipulator.

KTOS' s Beneish M-Score Range Over the Past 10 Years
Min: -6   Max: 1.96
Current: -2.54

-6
1.96

During the past 13 years, the highest Beneish M-Score of Kratos Defense & Security Solutions Inc was 1.96. The lowest was -6.00. And the median was -2.54.


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 Kratos Defense & Security Solutions 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 * 1.0423+0.528 * 1.0253+0.404 * 0.9166+0.892 * 1.0472+0.115 * 1.0314
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9315+4.679 * -0.039-0.327 * 0.8458
=-2.54

* 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 $227.9 Mil.
Revenue was 167.8 + 182.1 + 165.4 + 168.2 = $683.5 Mil.
Gross Profit was 45.1 + 46.6 + 25.9 + 45.2 = $162.8 Mil.
Total Current Assets was $387.3 Mil.
Total Assets was $961.6 Mil.
Property, Plant and Equipment(Net PPE) was $50.8 Mil.
Depreciation, Depletion and Amortization(DDA) was $22.3 Mil.
Selling, General & Admin. Expense(SGA) was $147.3 Mil.
Total Current Liabilities was $196.0 Mil.
Long-Term Debt was $369.3 Mil.
Net Income was -10 + -4.3 + -23.6 + -10.4 = $-48.3 Mil.
Non Operating Income was -1.9 + 0.4 + 0.1 + 0.2 = $-1.2 Mil.
Cash Flow from Operations was -8.7 + -3.8 + 3.8 + -0.9 = $-9.6 Mil.
Accounts Receivable was $208.8 Mil.
Revenue was 153 + 177.5 + 161.7 + 160.5 = $652.7 Mil.
Gross Profit was 35.9 + 42.2 + 40.4 + 40.9 = $159.4 Mil.
Total Current Assets was $305.3 Mil.
Total Assets was $884.4 Mil.
Property, Plant and Equipment(Net PPE) was $53.8 Mil.
Depreciation, Depletion and Amortization(DDA) was $24.7 Mil.
Selling, General & Admin. Expense(SGA) was $151.0 Mil.
Total Current Liabilities was $170.3 Mil.
Long-Term Debt was $444.4 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)
=(227.9 / 683.5) / (208.8 / 652.7)
=0.33343087 / 0.31990195
=1.0423

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)
=(159.4 / 652.7) / (162.8 / 683.5)
=0.24421633 / 0.23818581
=1.0253

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 - (387.3 + 50.8) / 961.6) / (1 - (305.3 + 53.8) / 884.4)
=0.54440516 / 0.59396201
=0.9166

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
=683.5 / 652.7
=1.0472

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))
=(24.7 / (24.7 + 53.8)) / (22.3 / (22.3 + 50.8))
=0.31464968 / 0.30506156
=1.0314

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)
=(147.3 / 683.5) / (151 / 652.7)
=0.21550841 / 0.23134671
=0.9315

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)
=((369.3 + 196) / 961.6) / ((444.4 + 170.3) / 884.4)
=0.58787438 / 0.69504749
=0.8458

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
=(-48.3 - -1.2 - -9.6) / 961.6
=-0.039

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.

Kratos Defense & Security Solutions Inc has a M-score of -2.54 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.

Kratos Defense & Security Solutions Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.02680.8390.70421.31061.11580.81650.62451.5771.13961.0895
GMI 1.15650.80471.06680.92030.77141.00771.0971.01350.97051.0725
AQI 1.16920.91970.94361.05260.98460.97390.99651.06770.94710.9504
SGI 1.26451.49231.15781.22121.74761.35760.87040.93310.83431.0181
DEPI 1.13350.72050.80892.1090.78410.98621.14211.0261.10430.9938
SGAI 1.10180.62130.83580.9981.37531.02111.01920.98181.14030.9535
LVGI 1.0971.07740.92661.37031.11091.0121.01751.060.87580.9692
TATA -0.1157-0.3326-0.2806-0.0276-0.022-0.1309-0.0483-0.03770.0594-0.0518
M-score -2.64-3.87-3.88-2.14-2.06-2.96-3.11-2.16-2.23-2.59

Kratos Defense & Security Solutions Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.5771.02250.83430.82341.13960.99781.09441.08011.08951.0423
GMI 1.01351.03510.98980.95170.97050.95680.961.09191.07251.0253
AQI 1.06771.02881.06160.99680.94710.9880.95420.99050.95040.9166
SGI 0.93310.9410.92180.9270.83430.8770.94280.98911.01811.0472
DEPI 1.0261.24410.8750.84821.10430.84881.05070.94950.99381.0314
SGAI 0.98180.96931.03721.04261.14031.12971.02381.01650.95350.9315
LVGI 1.061.06561.02690.88820.87580.88070.87871.04640.96920.8458
TATA -0.0377-0.035-0.03510.03110.05940.06350.0551-0.0501-0.0518-0.039
M-score -2.16-2.63-2.88-2.58-2.23-2.32-2.18-2.63-2.59-2.54
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