Photronics 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 Photronics 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 * 0.959 | + | 0.528 * 1.0181 | + | 0.404 * 0.757 | + | 0.892 * 1.0279 | + | 0.115 * 1.0414 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9851 | + | 4.679 * -0.0837 | - | 0.327 * 1.0613 |
| = | -2.99 |
* 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 (Jan21) TTM: | Last Year (Jan20) TTM: |
Accounts Receivable was $139.7 Mil.
Revenue was 152.067 + 149.286 + 157.895 + 142.774 = $602.0 Mil.
Gross Profit was 30.529 + 31.885 + 37.734 + 30.433 = $130.6 Mil.
Total Current Assets was $506.1 Mil.
Total Assets was $1,232.1 Mil.
Property, Plant and Equipment(Net PPE) was $672.4 Mil.
Depreciation, Depletion and Amortization(DDA) was $92.9 Mil.
Selling, General, & Admin. Expense(SGA) was $53.4 Mil.
Total Current Liabilities was $145.5 Mil.
Long-Term Debt & Capital Lease Obligation was $80.0 Mil.
Net Income was 8.036 + 6.46 + 10.776 + 6.284 = $31.6 Mil.
Non Operating Income was 1.382 + -2.24 + -1.565 + -1.433 = $-3.9 Mil.
Cash Flow from Operations was 26.287 + 64.782 + 16.941 + 30.538 = $138.5 Mil.
|
Accounts Receivable was $141.7 Mil.
Revenue was 159.736 + 156.256 + 138.112 + 131.58 = $585.7 Mil.
Gross Profit was 34.602 + 38.158 + 30.57 + 26.01 = $129.3 Mil.
Total Current Assets was $440.9 Mil.
Total Assets was $1,125.5 Mil.
Property, Plant and Equipment(Net PPE) was $619.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $89.7 Mil.
Selling, General, & Admin. Expense(SGA) was $52.8 Mil.
Total Current Liabilities was $157.7 Mil.
Long-Term Debt & Capital Lease Obligation was $36.4 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) |
| = | (139.708 / 602.022) | / | (141.72 / 585.684) |
| = | 0.23206461 | / | 0.24197349 |
| | = | 0.959 |
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) |
| = | (129.34 / 585.684) | / | (130.581 / 602.022) |
| = | 0.22083581 | / | 0.21690403 |
| | = | 1.0181 |
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 - (506.112 + 672.398) / 1232.062) | / | (1 - (440.904 + 619.935) / 1125.46) |
| = | 0.04346535 | / | 0.05741741 |
| | = | 0.757 |
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 |
| = | 602.022 | / | 585.684 |
| | = | 1.0279 |
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)) |
| = | (89.724 / (89.724 + 619.935)) | / | (92.912 / (92.912 + 672.398)) |
| = | 0.12643255 | / | 0.1214044 |
| | = | 1.0414 |
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) |
| = | (53.416 / 602.022) | / | (52.752 / 585.684) |
| = | 0.08872765 | / | 0.09006905 |
| | = | 0.9851 |
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) |
| = | ((79.984 + 145.531) / 1232.062) | / | ((36.449 + 157.654) / 1125.46) |
| = | 0.18303868 | / | 0.17246548 |
| | = | 1.0613 |
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 |
| = | (31.556 - -3.856 | - | 138.548) | / | 1232.062 |
| | = | -0.0837 |
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.
Photronics has a M-score of -2.99 suggests that the company is unlikely to be a manipulator.
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