BlackLine 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 BlackLine 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 * 0.889 | + | 0.528 * 0.9901 | + | 0.404 * 1.4322 | + | 0.892 * 1.2172 | + | 0.115 * 0.9312 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9412 | + | 4.679 * -0.0913 | - | 0.327 * 0.994 |
| = | -2.64 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Dec20) TTM: | Last Year (Dec19) TTM: |
Accounts Receivable was $111.3 Mil.
Revenue was 95.71 + 90.157 + 83.272 + 82.598 = $351.7 Mil.
Gross Profit was 76.528 + 73.175 + 66.529 + 66.533 = $282.8 Mil.
Total Current Assets was $674.1 Mil.
Total Assets was $1,113.5 Mil.
Property, Plant and Equipment(Net PPE) was $21.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $20.9 Mil.
Selling, General, & Admin. Expense(SGA) was $246.2 Mil.
Total Current Liabilities was $242.3 Mil.
Long-Term Debt & Capital Lease Obligation was $414.4 Mil.
Net Income was -16.985 + -8.751 + -8.332 + -12.843 = $-46.9 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.0 Mil.
Cash Flow from Operations was 14.812 + 21.789 + 9.617 + 8.517 = $54.7 Mil.
|
Accounts Receivable was $102.8 Mil.
Revenue was 80.258 + 74.925 + 69.664 + 64.129 = $289.0 Mil.
Gross Profit was 65.137 + 59.633 + 54.72 + 50.511 = $230.0 Mil.
Total Current Assets was $723.4 Mil.
Total Assets was $1,014.6 Mil.
Property, Plant and Equipment(Net PPE) was $25.6 Mil.
Depreciation, Depletion and Amortization(DDA) was $21.3 Mil.
Selling, General, & Admin. Expense(SGA) was $214.9 Mil.
Total Current Liabilities was $207.0 Mil.
Long-Term Debt & Capital Lease Obligation was $394.9 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) |
| = | (111.27 / 351.737) | / | (102.829 / 288.976) |
| = | 0.31634431 | / | 0.35583924 |
| | = | 0.889 |
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) |
| = | (230.001 / 288.976) | / | (282.765 / 351.737) |
| = | 0.79591731 | / | 0.80391031 |
| | = | 0.9901 |
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 - (674.115 + 21.947) / 1113.505) | / | (1 - (723.406 + 25.573) / 1014.552) |
| = | 0.374891 | / | 0.26176381 |
| | = | 1.4322 |
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 |
| = | 351.737 | / | 288.976 |
| | = | 1.2172 |
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)) |
| = | (21.274 / (21.274 + 25.573)) | / | (20.892 / (20.892 + 21.947)) |
| = | 0.45411659 | / | 0.48768645 |
| | = | 0.9312 |
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) |
| = | (246.192 / 351.737) | / | (214.894 / 288.976) |
| = | 0.69993205 | / | 0.74363961 |
| | = | 0.9412 |
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) |
| = | ((414.388 + 242.33) / 1113.505) | / | ((394.949 + 206.997) / 1014.552) |
| = | 0.58977553 | / | 0.59331212 |
| | = | 0.994 |
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 |
| = | (-46.911 - 0 | - | 54.735) | / | 1113.505 |
| | = | -0.0913 |
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.
BlackLine has a M-score of -2.64 suggests that the company is unlikely to be a manipulator.
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