Clearwater Paper 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 Clearwater Paper 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 * 0.9632 | + | 0.528 * 0.6319 | + | 0.404 * 1.0171 | + | 0.892 * 1.0551 | + | 0.115 * 0.9423 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.1064 | + | 4.679 * -0.0964 | - | 0.327 * 0.8922 |
| = | -3.09 |
* 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 $161 Mil.
Revenue was 457.4 + 480.5 + 477.9 + 435.5 = $1,851 Mil.
Gross Profit was 78.8 + 83.8 + 54.9 + 51.3 = $269 Mil.
Total Current Assets was $492 Mil.
Total Assets was $1,827 Mil.
Property, Plant and Equipment(Net PPE) was $1,267 Mil.
Depreciation, Depletion and Amortization(DDA) was $113 Mil.
Selling, General, & Admin. Expense(SGA) was $121 Mil.
Total Current Liabilities was $240 Mil.
Long-Term Debt & Capital Lease Obligation was $843 Mil.
Net Income was 21.4 + 22.8 + 10.3 + 2 = $57 Mil.
Non Operating Income was -5.8 + -3.6 + -3.3 + -3.3 = $-16 Mil.
Cash Flow from Operations was 55.7 + 109 + 12.1 + 71.8 = $249 Mil.
|
Accounts Receivable was $158 Mil.
Revenue was 445.2 + 452 + 428.8 + 428.689 = $1,755 Mil.
Gross Profit was 26.5 + 42.2 + 44.5 + 47.797 = $161 Mil.
Total Current Assets was $464 Mil.
Total Assets was $1,881 Mil.
Property, Plant and Equipment(Net PPE) was $1,348 Mil.
Depreciation, Depletion and Amortization(DDA) was $113 Mil.
Selling, General, & Admin. Expense(SGA) was $104 Mil.
Total Current Liabilities was $295 Mil.
Long-Term Debt & Capital Lease Obligation was $954 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) |
| = | (160.5 / 1851.3) | / | (157.929 / 1754.689) |
| = | 0.08669584 | / | 0.09000398 |
| | = | 0.9632 |
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) |
| = | (160.997 / 1754.689) | / | (268.8 / 1851.3) |
| = | 0.09175244 | / | 0.14519527 |
| | = | 0.6319 |
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 - (492 + 1266.9) / 1826.9) | / | (1 - (464.26 + 1347.977) / 1881.077) |
| = | 0.03722152 | / | 0.03659606 |
| | = | 1.0171 |
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 |
| = | 1851.3 | / | 1754.689 |
| | = | 1.0551 |
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)) |
| = | (112.514 / (112.514 + 1347.977)) | / | (112.8 / (112.8 + 1266.9)) |
| = | 0.07703848 | / | 0.0817569 |
| | = | 0.9423 |
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) |
| = | (120.9 / 1851.3) | / | (103.573 / 1754.689) |
| = | 0.06530546 | / | 0.05902641 |
| | = | 1.1064 |
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) |
| = | ((842.8 + 239.6) / 1826.9) | / | ((954.202 + 294.993) / 1881.077) |
| = | 0.59247906 | / | 0.66408499 |
| | = | 0.8922 |
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 |
| = | (56.5 - -16 | - | 248.6) | / | 1826.9 |
| | = | -0.0964 |
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.
Clearwater Paper has a M-score of -3.09 suggests that the company is unlikely to be a manipulator.
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