National General Holdings 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 National General Holdings 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 * 0.9134 | + | 0.528 * 1 | + | 0.404 * 0.8514 | + | 0.892 * 1.072 | + | 0.115 * 1.0936 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9341 | + | 4.679 * -0.0086 | - | 0.327 * 0.8733 |
| = | -2.53 |
* 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 $2,764 Mil.
Revenue was 1451.81 + 1443.009 + 1329.132 + 1328.334 = $5,552 Mil.
Gross Profit was 1451.81 + 1443.009 + 1329.132 + 1328.334 = $5,552 Mil.
Total Current Assets was $8,115 Mil.
Total Assets was $10,128 Mil.
Property, Plant and Equipment(Net PPE) was $378 Mil.
Depreciation, Depletion and Amortization(DDA) was $81 Mil.
Selling, General, & Admin. Expense(SGA) was $1,043 Mil.
Total Current Liabilities was $881 Mil.
Long-Term Debt & Capital Lease Obligation was $537 Mil.
Net Income was 136.029 + 109.969 + 166.574 + 100.759 = $513 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 148.75 + 142.781 + 164.49 + 144.049 = $600 Mil.
|
Accounts Receivable was $2,823 Mil.
Revenue was 1369.105 + 1308.172 + 1269.652 + 1232.665 = $5,180 Mil.
Gross Profit was 1369.105 + 1308.172 + 1269.652 + 1232.665 = $5,180 Mil.
Total Current Assets was $7,503 Mil.
Total Assets was $9,757 Mil.
Property, Plant and Equipment(Net PPE) was $404 Mil.
Depreciation, Depletion and Amortization(DDA) was $96 Mil.
Selling, General, & Admin. Expense(SGA) was $1,042 Mil.
Total Current Liabilities was $1,018 Mil.
Long-Term Debt & Capital Lease Obligation was $546 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) |
| = | (2764.31 / 5552.285) | / | (2823.256 / 5179.594) |
| = | 0.4978689 | / | 0.54507284 |
| | = | 0.9134 |
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) |
| = | (5179.594 / 5179.594) | / | (5552.285 / 5552.285) |
| = | 1 | / | 1 |
| | = | 1 |
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 - (8115.298 + 377.683) / 10127.894) | / | (1 - (7502.909 + 403.827) / 9756.534) |
| = | 0.16142675 | / | 0.18959581 |
| | = | 0.8514 |
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 |
| = | 5552.285 | / | 5179.594 |
| | = | 1.072 |
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)) |
| = | (96.279 / (96.279 + 403.827)) | / | (80.694 / (80.694 + 377.683)) |
| = | 0.19251719 | / | 0.17604286 |
| | = | 1.0936 |
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) |
| = | (1043.193 / 5552.285) | / | (1041.772 / 5179.594) |
| = | 0.18788535 | / | 0.20113005 |
| | = | 0.9341 |
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) |
| = | ((536.81 + 881.193) / 10127.894) | / | ((546.006 + 1018.21) / 9756.534) |
| = | 0.14000966 | / | 0.16032497 |
| | = | 0.8733 |
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 |
| = | (513.331 - 0 | - | 600.07) | / | 10127.894 |
| | = | -0.0086 |
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.
National General Holdings has a M-score of -2.53 suggests that the company is unlikely to be a manipulator.
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