DaVita 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 DaVita 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 * 0.9299 | + | 0.528 * 0.9524 | + | 0.404 * 1.0396 | + | 0.892 * 1.0206 | + | 0.115 * 0.9848 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0946 | + | 4.679 * -0.0801 | - | 0.327 * 1.0375 |
| = | -2.94 |
* 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 $1,804 Mil.
Revenue was 2924.066 + 2879.979 + 2841.237 + 2898.584 = $11,544 Mil.
Gross Profit was 952.347 + 895.415 + 865.788 + 897.959 = $3,612 Mil.
Total Current Assets was $3,430 Mil.
Total Assets was $17,047 Mil.
Property, Plant and Equipment(Net PPE) was $6,252 Mil.
Depreciation, Depletion and Amortization(DDA) was $627 Mil.
Selling, General, & Admin. Expense(SGA) was $1,221 Mil.
Total Current Liabilities was $2,499 Mil.
Long-Term Debt & Capital Lease Obligation was $10,577 Mil.
Net Income was 158.674 + 201.602 + 239.593 + 244.871 = $845 Mil.
Non Operating Income was 10.891 + -2.365 + 13.493 + 13.006 = $35 Mil.
Cash Flow from Operations was 482.727 + 651.122 + 360.381 + 680.53 = $2,175 Mil.
|
Accounts Receivable was $1,901 Mil.
Revenue was 2904.078 + 2842.705 + 2743.112 + 2821.124 = $11,311 Mil.
Gross Profit was 912.906 + 884.952 + 778.177 + 794.055 = $3,370 Mil.
Total Current Assets was $3,999 Mil.
Total Assets was $17,452 Mil.
Property, Plant and Equipment(Net PPE) was $6,201 Mil.
(DDA) was $612 Mil.
Selling, General, & Admin. Expense(SGA) was $1,093 Mil.
Total Current Liabilities was $2,207 Mil.
Long-Term Debt & Capital Lease Obligation was $10,697 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) |
| = | (1804.39 / 11543.866) | / | (1901.225 / 11311.019) |
| = | 0.15630725 | / | 0.16808609 |
| | = | 0.9299 |
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) |
| = | (3370.09 / 11311.019) | / | (3611.509 / 11543.866) |
| = | 0.29794751 | / | 0.31285091 |
| | = | 0.9524 |
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 - (3429.675 + 6252.082) / 17046.672) | / | (1 - (3998.718 + 6200.526) / 17451.83) |
| = | 0.43204416 | / | 0.41557739 |
| | = | 1.0396 |
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 |
| = | 11543.866 | / | 11311.019 |
| | = | 1.0206 |
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)) |
| = | (611.842 / (611.842 + 6200.526)) | / | (627.416 / (627.416 + 6252.082)) |
| = | 0.08981341 | / | 0.09120084 |
| | = | 0.9848 |
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) |
| = | (1221.49 / 11543.866) | / | (1093.419 / 11311.019) |
| = | 0.10581291 | / | 0.09666848 |
| | = | 1.0946 |
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) |
| = | ((10577.095 + 2499.241) / 17046.672) | / | ((10696.6 + 2206.64) / 17451.83) |
| = | 0.76709026 | / | 0.73936315 |
| | = | 1.0375 |
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 |
| = | (844.74 - 35.025 | - | 2174.76) | / | 17046.672 |
| | = | -0.0801 |
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.
DaVita has a M-score of -2.94 suggests that the company will not be a manipulator.
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