Caterpillar 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 Caterpillar 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 * 1.0286 | + | 0.528 * 1.03 | + | 0.404 * 1.0168 | + | 0.892 * 0.9212 | + | 0.115 * 1.0057 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.976 | + | 4.679 * -0.0214 | - | 0.327 * 1.0224 |
| = | -2.60 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Mar20) TTM: | Last Year (Mar19) TTM: |
Accounts Receivable was $16,954 Mil.
Revenue was 10635 + 13144 + 12758 + 14432 = $50,969 Mil.
Gross Profit was 3194 + 3844 + 4000 + 4299 = $15,337 Mil.
Total Current Assets was $37,586 Mil.
Total Assets was $75,894 Mil.
Property, Plant and Equipment(Net PPE) was $12,488 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,550 Mil.
Selling, General, & Admin. Expense(SGA) was $4,964 Mil.
Total Current Liabilities was $26,516 Mil.
Long-Term Debt & Capital Lease Obligation was $24,369 Mil.
Net Income was 1092 + 1098 + 1494 + 1620 = $5,304 Mil.
Non Operating Income was 222 + -373 + 88 + 68 = $5 Mil.
Cash Flow from Operations was 1130 + 2434 + 769 + 2588 = $6,921 Mil.
|
Accounts Receivable was $17,893 Mil.
Revenue was 13466 + 14342 + 13510 + 14011 = $55,329 Mil.
Gross Profit was 4273 + 4166 + 4303 + 4407 = $17,149 Mil.
Total Current Assets was $39,126 Mil.
Total Assets was $78,726 Mil.
Property, Plant and Equipment(Net PPE) was $13,259 Mil.
(DDA) was $2,726 Mil.
Selling, General, & Admin. Expense(SGA) was $5,521 Mil.
Total Current Liabilities was $27,388 Mil.
Long-Term Debt & Capital Lease Obligation was $24,240 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) |
| = | (16954 / 50969) | / | (17893 / 55329) |
| = | 0.33263356 | / | 0.3233928 |
| | = | 1.0286 |
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) |
| = | (17149 / 55329) | / | (15337 / 50969) |
| = | 0.30994596 | / | 0.3009084 |
| | = | 1.03 |
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 - (37586 + 12488) / 75894) | / | (1 - (39126 + 13259) / 78726) |
| = | 0.34021135 | / | 0.33459086 |
| | = | 1.0168 |
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 |
| = | 50969 | / | 55329 |
| | = | 0.9212 |
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)) |
| = | (2726 / (2726 + 13259)) | / | (2550 / (2550 + 12488)) |
| = | 0.17053488 | / | 0.16957042 |
| | = | 1.0057 |
6. SGAI = Sales, General and Administrative expenses Index
The ratio of c 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) |
| = | (4964 / 50969) | / | (5521 / 55329) |
| = | 0.09739253 | / | 0.09978492 |
| | = | 0.976 |
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$sgai= in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((24369 + 26516) / 75894) | / | ((24240 + 27388) / 78726) |
| = | 0.67047461 | / | 0.65579351 |
| | = | 1.0224 |
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 |
| = | (5304 - 5 | - | 6921) | / | 75894 |
| | = | -0.0214 |
An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.
Caterpillar has a M-score of -2.60 suggests that the company will not be a manipulator.
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