Host Hotels & Resorts 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 Host Hotels & Resorts 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 | + | 0.528 * 2.5646 | + | 0.404 * 0.9916 | + | 0.892 * 0.4889 | + | 0.115 * 1.0368 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.1464 | + | 4.679 * -0.057 | - | 0.327 * 1.2132 |
| = | -2.47 |
* 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 $0 Mil.
Revenue was 198 + 103 + 1052 + 1334 = $2,687 Mil.
Gross Profit was -129 + -162 + 208 + 429 = $346 Mil.
Total Current Assets was $2,502 Mil.
Total Assets was $13,071 Mil.
Property, Plant and Equipment(Net PPE) was $600 Mil.
Depreciation, Depletion and Amortization(DDA) was $673 Mil.
Selling, General, & Admin. Expense(SGA) was $190 Mil.
Total Current Liabilities was $168 Mil.
Long-Term Debt & Capital Lease Obligation was $6,250 Mil.
Net Income was -313 + -352 + -3 + 80 = $-588 Mil.
Non Operating Income was -5 + -11 + 2 + -1 = $-15 Mil.
Cash Flow from Operations was -149 + -172 + 157 + 336 = $172 Mil.
|
Accounts Receivable was $0 Mil.
Revenue was 1262 + 1483 + 1390 + 1361 = $5,496 Mil.
Gross Profit was 376 + 542 + 469 + 428 = $1,815 Mil.
Total Current Assets was $2,483 Mil.
Total Assets was $13,132 Mil.
Property, Plant and Equipment(Net PPE) was $549 Mil.
Depreciation, Depletion and Amortization(DDA) was $666 Mil.
Selling, General, & Admin. Expense(SGA) was $339 Mil.
Total Current Liabilities was $315 Mil.
Long-Term Debt & Capital Lease Obligation was $5,000 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) |
| = | (0 / 2687) | / | (0 / 5496) |
| = | 0 | / | 0 |
| | = | 1 |
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) |
| = | (1815 / 5496) | / | (346 / 2687) |
| = | 0.33024017 | / | 0.12876814 |
| | = | 2.5646 |
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 - (2502 + 600) / 13071) | / | (1 - (2483 + 549) / 13132) |
| = | 0.76268074 | / | 0.76911362 |
| | = | 0.9916 |
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 |
| = | 2687 | / | 5496 |
| | = | 0.4889 |
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)) |
| = | (666 / (666 + 549)) | / | (673 / (673 + 600)) |
| = | 0.54814815 | / | 0.52867243 |
| | = | 1.0368 |
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) |
| = | (190 / 2687) | / | (339 / 5496) |
| = | 0.07071083 | / | 0.06168122 |
| | = | 1.1464 |
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) |
| = | ((6250 + 168) / 13071) | / | ((5000 + 315) / 13132) |
| = | 0.49101063 | / | 0.40473652 |
| | = | 1.2132 |
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 |
| = | (-588 - -15 | - | 172) | / | 13071 |
| | = | -0.057 |
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.
Host Hotels & Resorts has a M-score of -2.47 suggests that the company is unlikely to be a manipulator.
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