Graco 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 Graco 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 * 1.1014 | + | 0.528 * 0.9991 | + | 0.404 * 0.9794 | + | 0.892 * 1.0718 | + | 0.115 * 0.969 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9305 | + | 4.679 * -0.0202 | - | 0.327 * 0.639 |
| = | -2.30 |
* 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 (Mar21) TTM: | Last Year (Mar20) TTM: |
Accounts Receivable was $323 Mil.
Revenue was 454.129 + 470.34 + 439.316 + 366.892 = $1,731 Mil.
Gross Profit was 247.334 + 244.824 + 228.953 + 182.529 = $904 Mil.
Total Current Assets was $1,127 Mil.
Total Assets was $2,088 Mil.
Property, Plant and Equipment(Net PPE) was $398 Mil.
Depreciation, Depletion and Amortization(DDA) was $57 Mil.
Selling, General, & Admin. Expense(SGA) was $364 Mil.
Total Current Liabilities was $324 Mil.
Long-Term Debt & Capital Lease Obligation was $180 Mil.
Net Income was 105.687 + 114.691 + 114.115 + 28.832 = $363 Mil.
Non Operating Income was -0.121 + -0.049 + -1.292 + -34.452 = $-36 Mil.
Cash Flow from Operations was 101.669 + 131.316 + 120.169 + 88.317 = $441 Mil.
|
Accounts Receivable was $274 Mil.
Revenue was 373.567 + 412.292 + 400.555 + 428.328 = $1,615 Mil.
Gross Profit was 198.631 + 209.381 + 207.379 + 226.954 = $842 Mil.
Total Current Assets was $1,049 Mil.
Total Assets was $1,947 Mil.
Property, Plant and Equipment(Net PPE) was $363 Mil.
Depreciation, Depletion and Amortization(DDA) was $50 Mil.
Selling, General, & Admin. Expense(SGA) was $365 Mil.
Total Current Liabilities was $312 Mil.
Long-Term Debt & Capital Lease Obligation was $423 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) |
| = | (323.197 / 1730.677) | / | (273.789 / 1614.742) |
| = | 0.186746 | / | 0.16955588 |
| | = | 1.1014 |
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) |
| = | (842.345 / 1614.742) | / | (903.64 / 1730.677) |
| = | 0.52165919 | / | 0.52213093 |
| | = | 0.9991 |
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 - (1127.386 + 397.534) / 2087.72) | / | (1 - (1048.772 + 362.556) / 1947.34) |
| = | 0.26957638 | / | 0.27525342 |
| | = | 0.9794 |
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 |
| = | 1730.677 | / | 1614.742 |
| | = | 1.0718 |
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)) |
| = | (49.96 / (49.96 + 362.556)) | / | (56.782 / (56.782 + 397.534)) |
| = | 0.12111045 | / | 0.12498349 |
| | = | 0.969 |
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) |
| = | (363.535 / 1730.677) | / | (364.535 / 1614.742) |
| = | 0.21005364 | / | 0.22575433 |
| | = | 0.9305 |
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) |
| = | ((180.02 + 323.52) / 2087.72) | / | ((423.21 + 311.763) / 1947.34) |
| = | 0.24119135 | / | 0.37742408 |
| | = | 0.639 |
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 |
| = | (363.325 - -35.914 | - | 441.471) | / | 2087.72 |
| | = | -0.0202 |
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.
Graco has a M-score of -2.30 suggests that the company is unlikely to be a manipulator.
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