CDK Global 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 CDK Global 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 * 0.7258 | + | 0.528 * 1.0705 | + | 0.404 * 0.8431 | + | 0.892 * 0.9807 | + | 0.115 * 0.7793 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9411 | + | 4.679 * -0.0536 | - | 0.327 * 0.958 |
| = | -3.03 |
* All numbers are in millions except for per share data and ratio. All numbers are indicated in the company's associated stock exchange currency.
| This Year (Dec20) TTM: | Last Year (Dec19) TTM: |
Accounts Receivable was $228 Mil.
Revenue was 406.3 + 493.6 + 449.6 + 516.3 = $1,866 Mil.
Gross Profit was 198.6 + 231.5 + 208.8 + 273.8 = $913 Mil.
Total Current Assets was $1,200 Mil.
Total Assets was $2,935 Mil.
Property, Plant and Equipment(Net PPE) was $86 Mil.
Depreciation, Depletion and Amortization(DDA) was $102 Mil.
Selling, General, & Admin. Expense(SGA) was $404 Mil.
Total Current Liabilities was $807 Mil.
Long-Term Debt & Capital Lease Obligation was $2,334 Mil.
Net Income was 68.3 + 55.7 + 45.6 + 57.6 = $227 Mil.
Non Operating Income was 2.2 + 11.6 + 1.7 + -0.5 = $15 Mil.
Cash Flow from Operations was 73.5 + 99.7 + 63.4 + 133 = $370 Mil.
|
Accounts Receivable was $321 Mil.
Revenue was 418.2 + 494.6 + 488.6 + 501.2 = $1,903 Mil.
Gross Profit was 225.1 + 247.3 + 252 + 271.9 = $996 Mil.
Total Current Assets was $852 Mil.
Total Assets was $2,936 Mil.
Property, Plant and Equipment(Net PPE) was $127 Mil.
Depreciation, Depletion and Amortization(DDA) was $93 Mil.
Selling, General, & Admin. Expense(SGA) was $437 Mil.
Total Current Liabilities was $538 Mil.
Long-Term Debt & Capital Lease Obligation was $2,741 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) |
| = | (228.4 / 1865.8) | / | (320.9 / 1902.6) |
| = | 0.12241398 | / | 0.16866393 |
| | = | 0.7258 |
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) |
| = | (996.3 / 1902.6) | / | (912.7 / 1865.8) |
| = | 0.52365184 | / | 0.48917354 |
| | = | 1.0705 |
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 - (1199.5 + 85.8) / 2935.4) | / | (1 - (851.8 + 126.6) / 2935.9) |
| = | 0.56213804 | / | 0.66674614 |
| | = | 0.8431 |
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 |
| = | 1865.8 | / | 1902.6 |
| | = | 0.9807 |
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)) |
| = | (92.7 / (92.7 + 126.6)) | / | (101.7 / (101.7 + 85.8)) |
| = | 0.42270862 | / | 0.5424 |
| | = | 0.7793 |
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) |
| = | (403.6 / 1865.8) | / | (437.3 / 1902.6) |
| = | 0.21631472 | / | 0.22984337 |
| | = | 0.9411 |
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) |
| = | ((2333.5 + 807.4) / 2935.4) | / | ((2741.2 + 537.8) / 2935.9) |
| = | 1.07000749 | / | 1.11686365 |
| | = | 0.958 |
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 |
| = | (227.2 - 15 | - | 369.6) | / | 2935.4 |
| | = | -0.0536 |
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.
CDK Global has a M-score of -3.03 suggests that the company is unlikely to be a manipulator.
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