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GuruFocus has detected 5 Warning Signs with McDonald's Corp $MCD.
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McDonald's Corp (NYSE:MCD)
Beneish M-Score
-2.61 (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.

McDonald's Corp has a M-score of -2.61 suggests that the company is not a manipulator.

MCD' s Beneish M-Score Range Over the Past 10 Years
Min: -3.78   Max: -2.18
Current: -2.61

-3.78
-2.18

During the past 13 years, the highest Beneish M-Score of McDonald's Corp was -2.18. The lowest was -3.78. And the median was -2.66.


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 McDonald's Corp 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 * 1.1957+0.528 * 0.9229+0.404 * 0.9883+0.892 * 0.962+0.115 * 0.9671
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.996+4.679 * -0.0331-0.327 * 1.2125
=-2.61

* 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 $1,337 Mil.
Revenue was 5675.9 + 6028.9 + 6424.1 + 6265 = $24,394 Mil.
Gross Profit was 2429.4 + 2558.2 + 2747 + 2586 = $10,321 Mil.
Total Current Assets was $5,907 Mil.
Total Assets was $32,120 Mil.
Property, Plant and Equipment(Net PPE) was $21,214 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,458 Mil.
Selling, General & Admin. Expense(SGA) was $2,328 Mil.
Total Current Liabilities was $3,221 Mil.
Long-Term Debt was $26,984 Mil.
Net Income was 1214.8 + 1193.4 + 1275.4 + 1092.9 = $4,777 Mil.
Non Operating Income was -7.9 + -12.9 + -11.4 + 13.2 = $-19 Mil.
Cash Flow from Operations was 1544 + 814.9 + 2251.1 + 1248.4 = $5,858 Mil.
Accounts Receivable was $1,162 Mil.
Revenue was 5903.9 + 6341.3 + 6615.1 + 6497.7 = $25,358 Mil.
Gross Profit was 2313.5 + 2506.5 + 2591.3 + 2490.4 = $9,902 Mil.
Total Current Assets was $5,052 Mil.
Total Assets was $33,795 Mil.
Property, Plant and Equipment(Net PPE) was $23,422 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,553 Mil.
Selling, General & Admin. Expense(SGA) was $2,430 Mil.
Total Current Liabilities was $2,859 Mil.
Long-Term Debt was $23,353 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)
=(1336.7 / 24393.9) / (1162.1 / 25358)
=0.05479649 / 0.04582775
=1.1957

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)
=(9901.7 / 25358) / (10320.6 / 24393.9)
=0.39047638 / 0.42308118
=0.9229

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 - (5907.2 + 21214.1) / 32120.3) / (1 - (5051.6 + 23421.8) / 33795.4)
=0.15563366 / 0.15747705
=0.9883

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
=24393.9 / 25358
=0.962

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))
=(1553.3 / (1553.3 + 23421.8)) / (1458.1 / (1458.1 + 21214.1))
=0.06219395 / 0.06431224
=0.9671

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)
=(2327.8 / 24393.9) / (2429.5 / 25358)
=0.0954255 / 0.09580803
=0.996

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)
=((26984.2 + 3220.7) / 32120.3) / ((23352.6 + 2858.7) / 33795.4)
=0.94036793 / 0.7755878
=1.2125

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
=(4776.5 - -19 - 5858.4) / 32120.3
=-0.0331

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.

McDonald's Corp has a M-score of -2.61 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.

McDonald's Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.21680.8561.17771.05051.00911.00940.94130.94241.15481.1715
GMI 0.94440.94460.95020.96561.01161.00851.01151.01810.98910.9294
AQI 1.09491.00361.05970.99341.00530.93790.97311.00680.85181.1614
SGI 1.07331.03230.96691.05851.12181.02081.01950.97640.92610.9689
DEPI 1.10470.97191.05260.97770.93721.02570.98090.9240.99540.9469
SGAI 0.950.9640.98090.98670.91451.00480.9531.06811.05651.011
LVGI 1.02641.11271.00271.00611.05131.01530.98111.09381.38121.3256
TATA -0.0879-0.0647-0.043-0.0423-0.0494-0.0417-0.0411-0.0577-0.0541-0.0444
M-score -2.61-2.95-2.54-2.60-2.60-2.67-2.70-2.86-2.86-2.64

McDonald's Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 0.94240.93780.99041.011.15481.12071.11321.22181.17151.1957
GMI 1.01811.02091.02271.0080.98910.97270.95120.93440.92940.9229
AQI 1.00681.01150.95380.98080.85180.96251.04751.0091.16140.9883
SGI 0.97640.94680.91930.91710.92610.94970.96580.97230.96890.962
DEPI 0.9240.90550.93530.97440.99541.04530.99881.01780.94690.9671
SGAI 1.06811.07411.07961.07641.05651.0441.04391.03291.0110.996
LVGI 1.09381.13891.22171.22441.38121.46331.46331.47641.32561.2125
TATA -0.0577-0.0681-0.0687-0.0695-0.0541-0.0529-0.0493-0.0601-0.0444-0.0331
M-score -2.86-2.96-2.98-2.96-2.86-2.84-2.80-2.77-2.64-2.61
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