PepsiCo 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 PepsiCo 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 * 1.0119 | + | 0.528 * 0.9964 | + | 0.404 * 0.9986 | + | 0.892 * 1.038 | + | 0.115 * 1.0556 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0215 | + | 4.679 * -0.0403 | - | 0.327 * 1.0803 |
| = | -2.65 |
* 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 $9,295 Mil.
Revenue was 18091 + 15945 + 13881 + 20640 = $68,557 Mil.
Gross Profit was 9935 + 8857 + 7754 + 11294 = $37,840 Mil.
Total Current Assets was $24,060 Mil.
Total Assets was $92,041 Mil.
Property, Plant and Equipment(Net PPE) was $19,726 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,529 Mil.
Selling, General, & Admin. Expense(SGA) was $27,887 Mil.
Total Current Liabilities was $26,009 Mil.
Long-Term Debt & Capital Lease Obligation was $37,879 Mil.
Net Income was 2291 + 1646 + 1338 + 1766 = $7,041 Mil.
Non Operating Income was 86 + 84 + 77 + -207 = $40 Mil.
Cash Flow from Operations was 4661 + 2211 + -749 + 4586 = $10,709 Mil.
|
Accounts Receivable was $8,849 Mil.
Revenue was 17188 + 16449 + 12884 + 19524 = $66,045 Mil.
Gross Profit was 9494 + 9045 + 7196 + 10588 = $36,323 Mil.
Total Current Assets was $19,198 Mil.
Total Assets was $77,444 Mil.
Property, Plant and Equipment(Net PPE) was $17,586 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,397 Mil.
Selling, General, & Admin. Expense(SGA) was $26,300 Mil.
Total Current Liabilities was $20,131 Mil.
Long-Term Debt & Capital Lease Obligation was $29,630 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) |
| = | (9295 / 68557) | / | (8849 / 66045) |
| = | 0.13558061 | / | 0.1339844 |
| | = | 1.0119 |
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) |
| = | (36323 / 66045) | / | (37840 / 68557) |
| = | 0.5499735 | / | 0.55194947 |
| | = | 0.9964 |
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 - (24060 + 19726) / 92041) | / | (1 - (19198 + 17586) / 77444) |
| = | 0.52427722 | / | 0.52502453 |
| | = | 0.9986 |
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 |
| = | 68557 | / | 66045 |
| | = | 1.038 |
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)) |
| = | (2397 / (2397 + 17586)) | / | (2529 / (2529 + 19726)) |
| = | 0.11995196 | / | 0.11363738 |
| | = | 1.0556 |
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) |
| = | (27887 / 68557) | / | (26300 / 66045) |
| = | 0.40677101 | / | 0.39821334 |
| | = | 1.0215 |
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) |
| = | ((37879 + 26009) / 92041) | / | ((29630 + 20131) / 77444) |
| = | 0.69412544 | / | 0.64254171 |
| | = | 1.0803 |
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 |
| = | (7041 - 40 | - | 10709) | / | 92041 |
| | = | -0.0403 |
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.
PepsiCo has a M-score of -2.65 suggests that the company is unlikely to be a manipulator.
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