Hollysys Automation Technologies 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 Hollysys Automation Technologies 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 * 1.1889 | + | 0.528 * 1.0084 | + | 0.404 * 0.7922 | + | 0.892 * 0.9184 | + | 0.115 * 1.0861 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0771 | + | 4.679 * -0.0398 | - | 0.327 * 1.0687 |
| = | -2.67 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Sep20) TTM: | Last Year (Sep19) TTM: |
Accounts Receivable was $268.3 Mil.
Revenue was 129.468 + 129.221 + 80.768 + 170.108 = $509.6 Mil.
Gross Profit was 43.501 + 57.665 + 24.765 + 61.754 = $187.7 Mil.
Total Current Assets was $1,254.0 Mil.
Total Assets was $1,453.4 Mil.
Property, Plant and Equipment(Net PPE) was $90.8 Mil.
Depreciation, Depletion and Amortization(DDA) was $9.3 Mil.
Selling, General, & Admin. Expense(SGA) was $70.4 Mil.
Total Current Liabilities was $374.5 Mil.
Long-Term Debt & Capital Lease Obligation was $19.8 Mil.
Net Income was 20.546 + 1.806 + 13.846 + 34.065 = $70.3 Mil.
Non Operating Income was 0.797 + -36.468 + 1.699 + 4.385 = $-29.6 Mil.
Cash Flow from Operations was 21.597 + 57.66 + 8.017 + 70.49 = $157.8 Mil.
|
Accounts Receivable was $245.7 Mil.
Revenue was 123.23 + 156.991 + 125.167 + 149.464 = $554.9 Mil.
Gross Profit was 46.384 + 53.269 + 49.437 + 57 = $206.1 Mil.
Total Current Assets was $1,082.5 Mil.
Total Assets was $1,281.3 Mil.
Property, Plant and Equipment(Net PPE) was $78.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $8.8 Mil.
Selling, General, & Admin. Expense(SGA) was $71.2 Mil.
Total Current Liabilities was $319.2 Mil.
Long-Term Debt & Capital Lease Obligation was $6.0 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) |
| = | (268.27 / 509.565) | / | (245.696 / 554.852) |
| = | 0.52646865 | / | 0.44281358 |
| | = | 1.1889 |
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) |
| = | (206.09 / 554.852) | / | (187.685 / 509.565) |
| = | 0.37143238 | / | 0.36832396 |
| | = | 1.0084 |
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 - (1254.021 + 90.757) / 1453.391) | / | (1 - (1082.45 + 77.98) / 1281.301) |
| = | 0.07473075 | / | 0.09433459 |
| | = | 0.7922 |
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 |
| = | 509.565 | / | 554.852 |
| | = | 0.9184 |
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)) |
| = | (8.762 / (8.762 + 77.98)) | / | (9.306 / (9.306 + 90.757)) |
| = | 0.1010122 | / | 0.09300141 |
| | = | 1.0861 |
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) |
| = | (70.391 / 509.565) | / | (71.159 / 554.852) |
| = | 0.13813939 | / | 0.12824861 |
| | = | 1.0771 |
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) |
| = | ((19.786 + 374.457) / 1453.391) | / | ((5.962 + 319.244) / 1281.301) |
| = | 0.27125736 | / | 0.25380921 |
| | = | 1.0687 |
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 |
| = | (70.263 - -29.587 | - | 157.764) | / | 1453.391 |
| | = | -0.0398 |
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.
Hollysys Automation Technologies has a M-score of -2.67 suggests that the company is unlikely to be a manipulator.
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