People's United Financial 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 People's United Financial 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 * 1.1984 | + | 0.528 * 1 | + | 0.404 * 0.9256 | + | 0.892 * 1.0809 | + | 0.115 * 0.7896 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9614 | + | 4.679 * -0.0099 | - | 0.327 * 0.3972 |
| = | -2.12 |
* 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 $202 Mil.
Revenue was 485 + 492.5 + 495.2 + 519.8 = $1,993 Mil.
Gross Profit was 485 + 492.5 + 495.2 + 519.8 = $1,993 Mil.
Total Current Assets was $9,264 Mil.
Total Assets was $63,092 Mil.
Property, Plant and Equipment(Net PPE) was $678 Mil.
Depreciation, Depletion and Amortization(DDA) was $84 Mil.
Selling, General, & Admin. Expense(SGA) was $783 Mil.
Total Current Liabilities was $652 Mil.
Long-Term Debt & Capital Lease Obligation was $1,298 Mil.
Net Income was -145.3 + 144.6 + 89.9 + 130.4 = $220 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 194.4 + 332.3 + 100.4 + 215.8 = $843 Mil.
|
Accounts Receivable was $156 Mil.
Revenue was 506.9 + 454.7 + 454.4 + 427.4 = $1,843 Mil.
Gross Profit was 506.9 + 454.7 + 454.4 + 427.4 = $1,843 Mil.
Total Current Assets was $4,489 Mil.
Total Assets was $58,590 Mil.
Property, Plant and Equipment(Net PPE) was $776 Mil.
Depreciation, Depletion and Amortization(DDA) was $74 Mil.
Selling, General, & Admin. Expense(SGA) was $754 Mil.
Total Current Liabilities was $3,232 Mil.
Long-Term Debt & Capital Lease Obligation was $1,326 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) |
| = | (202.2 / 1992.5) | / | (156.1 / 1843.4) |
| = | 0.10148055 | / | 0.08468048 |
| | = | 1.1984 |
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) |
| = | (1843.4 / 1843.4) | / | (1992.5 / 1992.5) |
| = | 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 - (9263.8 + 677.6) / 63091.8) | / | (1 - (4488.7 + 776) / 58589.8) |
| = | 0.8424296 | / | 0.91014306 |
| | = | 0.9256 |
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 |
| = | 1992.5 | / | 1843.4 |
| | = | 1.0809 |
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)) |
| = | (74.2 / (74.2 + 776)) | / | (84.2 / (84.2 + 677.6)) |
| = | 0.08727358 | / | 0.1105277 |
| | = | 0.7896 |
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) |
| = | (783.2 / 1992.5) | / | (753.7 / 1843.4) |
| = | 0.39307403 | / | 0.40886406 |
| | = | 0.9614 |
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) |
| = | ((1297.7 + 651.6) / 63091.8) | / | ((1326.1 + 3231.6) / 58589.8) |
| = | 0.03089625 | / | 0.07778999 |
| | = | 0.3972 |
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 |
| = | (219.6 - 0 | - | 842.9) | / | 63091.8 |
| | = | -0.0099 |
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.
People's United Financial has a M-score of -2.12 suggests that the company is unlikely to be a manipulator.
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