Sun Bancorp 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 Sun Bancorp 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 * 1.0384 | + | 0.528 * 1 | + | 0.404 * 1.0318 | + | 0.892 * 1.0126 | + | 0.115 * 2.3087 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9341 | + | 4.679 * 0.020906 | - | 0.327 * 0.781 |
| = | -2.09 |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
| This Year (Sep17) TTM: | Last Year (Sep16) TTM: |
Total Receivables was $5.16 Mil.
Revenue was 18.869 + 17.863 + 18.203 + 18.145 = $73.08 Mil.
Gross Profit was 18.869 + 17.863 + 18.203 + 18.145 = $73.08 Mil.
Total Current Assets was $98.62 Mil.
Total Assets was $2,167.67 Mil.
Property, Plant and Equipment(Net PPE) was $28.23 Mil.
Depreciation, Depletion and Amortization(DDA) was $2.02 Mil.
Selling, General, & Admin. Expense(SGA) was $41.64 Mil.
Total Current Liabilities was $0.00 Mil.
Long-Term Debt & Capital Lease Obligation was $142.78 Mil.
Net Income was 2.74 + 1.455 + 1.43 + 55.999 = $61.62 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.00 Mil.
Cash Flow from Operations was 6.235 + 4.568 + 0.836 + 4.667 = $16.31 Mil.
|
Total Receivables was $4.91 Mil.
Revenue was 17.854 + 18.646 + 17.65 + 18.019 = $72.17 Mil.
Gross Profit was 17.854 + 18.646 + 17.65 + 18.019 = $72.17 Mil.
Total Current Assets was $161.20 Mil.
Total Assets was $2,189.35 Mil.
Property, Plant and Equipment(Net PPE) was $30.50 Mil.
Depreciation, Depletion and Amortization(DDA) was $5.55 Mil.
Selling, General, & Admin. Expense(SGA) was $44.02 Mil.
Total Current Liabilities was $0.00 Mil.
Long-Term Debt & Capital Lease Obligation was $184.65 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total Receivables 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) |
| = | (5.161 / 73.08) | / | (4.908 / 72.169) |
| = | 0.070621 | / | 0.068007 |
| | = | 1.0384 |
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) |
| = | (72.169 / 72.169) | / | (73.08 / 73.08) |
| = | 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 - (98.619 + 28.225) / 2167.674) | / | (1 - (161.2 + 30.5) / 2189.346) |
| = | 0.941484 | / | 0.91244 |
| | = | 1.0318 |
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 |
| = | 73.08 | / | 72.169 |
| | = | 1.0126 |
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)) |
| = | (5.554 / (5.554 + 30.5)) | / | (2.018 / (2.018 + 28.225)) |
| = | 0.154047 | / | 0.066726 |
| | = | 2.3087 |
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) |
| = | (41.639 / 73.08) | / | (44.02 / 72.169) |
| = | 0.569773 | / | 0.609957 |
| | = | 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) |
| = | ((142.784 + 0) / 2167.674) | / | ((184.647 + 0) / 2189.346) |
| = | 0.06587 | / | 0.084339 |
| | = | 0.781 |
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 |
| = | (61.624 - 0 | - | 16.306) | / | 2167.674 |
| | = | 0.020906 |
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.
Sun Bancorp has a M-score of -2.09 suggests that the company is unlikely to be a manipulator.
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