Griffon 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 Griffon 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 * 1.0639 | + | 0.528 * 0.98 | + | 0.404 * 0.9244 | + | 0.892 * 1.0984 | + | 0.115 * 1.0364 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.989 | + | 4.679 * -0.04 | - | 0.327 * 0.887 |
| = | -2.52 |
* 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 (Dec20) TTM: | Last Year (Dec19) TTM: |
Accounts Receivable was $319 Mil.
Revenue was 609.291 + 660.673 + 632.061 + 566.35 = $2,468 Mil.
Gross Profit was 170.172 + 174.47 + 165.003 + 152.032 = $662 Mil.
Total Current Assets was $1,144 Mil.
Total Assets was $2,484 Mil.
Property, Plant and Equipment(Net PPE) was $501 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General, & Admin. Expense(SGA) was $490 Mil.
Total Current Liabilities was $447 Mil.
Long-Term Debt & Capital Lease Obligation was $1,170 Mil.
Net Income was 29.5 + 20.091 + 21.831 + 0.895 = $72 Mil.
Non Operating Income was 6.199 + -0.754 + -0.429 + -6.075 = $-1 Mil.
Cash Flow from Operations was 20.077 + 80.963 + 115.882 + -44.062 = $173 Mil.
|
Accounts Receivable was $273 Mil.
Revenue was 548.438 + 574.164 + 574.97 + 549.633 = $2,247 Mil.
Gross Profit was 149.921 + 148.441 + 154.483 + 137.504 = $590 Mil.
Total Current Assets was $946 Mil.
Total Assets was $2,258 Mil.
Property, Plant and Equipment(Net PPE) was $487 Mil.
Depreciation, Depletion and Amortization(DDA) was $63 Mil.
Selling, General, & Admin. Expense(SGA) was $451 Mil.
Total Current Liabilities was $389 Mil.
Long-Term Debt & Capital Lease Obligation was $1,268 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) |
| = | (318.535 / 2468.375) | / | (272.572 / 2247.205) |
| = | 0.12904644 | / | 0.12129378 |
| | = | 1.0639 |
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) |
| = | (590.349 / 2247.205) | / | (661.677 / 2468.375) |
| = | 0.26270367 | / | 0.26806178 |
| | = | 0.98 |
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 - (1144.331 + 500.566) / 2484.443) | / | (1 - (945.954 + 486.527) / 2257.802) |
| = | 0.33792122 | / | 0.3655418 |
| | = | 0.9244 |
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 |
| = | 2468.375 | / | 2247.205 |
| | = | 1.0984 |
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)) |
| = | (62.588 / (62.588 + 486.527)) | / | (61.85 / (61.85 + 500.566)) |
| = | 0.11397977 | / | 0.10997198 |
| | = | 1.0364 |
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) |
| = | (490.157 / 2468.375) | / | (451.207 / 2247.205) |
| = | 0.19857477 | / | 0.20078587 |
| | = | 0.989 |
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) |
| = | ((1170.047 + 446.798) / 2484.443) | / | ((1268.083 + 388.511) / 2257.802) |
| = | 0.65078772 | / | 0.73371979 |
| | = | 0.887 |
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 |
| = | (72.317 - -1.059 | - | 172.86) | / | 2484.443 |
| | = | -0.04 |
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.
Griffon has a M-score of -2.52 suggests that the company is unlikely to be a manipulator.
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