GSX Techedu 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 GSX Techedu 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 | + | 0.528 * 0.9188 | + | 0.404 * 0.4254 | + | 0.892 * 4.2815 | + | 0.115 * 1 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.5451 | + | 4.679 * -0.2046 | - | 0.327 * 1.8441 |
| = | -1.16 |
* All numbers are in millions except for per share data and ratio. All numbers are indicated in the company's associated stock exchange currency.
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) |
| = | (0 / 839.82381530226) | / | (0 / 196.15262325068) |
| = | 0 | / | 0 |
| | = | 1 |
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) |
| = | (138.81550205311 / 196.15262325068) | / | (646.85606075405 / 839.82381530226) |
| = | 0.70769129 | / | 0.77022829 |
| | = | 0.9188 |
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 - (304.43690717411 + 200.39981793087) / 616.7582885502) | / | (1 - (173.62708576409 + 37.905590620915) / 368.89930697106) |
| = | 0.18146747 | / | 0.42658424 |
| | = | 0.4254 |
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 |
| = | 839.82381530226 | / | 196.15262325068 |
| | = | 4.2815 |
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)) |
| = | (0.23435986829363 / (0.23435986829363 + 37.905590620915)) | / | (0 / (0 + 200.39981793087)) |
| = | 0.00614473 | / | 0 |
| | = | 1 |
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) |
| = | (699.76347698794 / 839.82381530226) | / | (105.77875472214 / 196.15262325068) |
| = | 0.83322652 | / | 0.5392676 |
| | = | 1.5451 |
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) |
| = | ((84.837752914574 + 415.66176254662) / 616.7582885502) | / | ((20.611917848658 + 141.7245596525) / 368.89930697106) |
| = | 0.81150027 | / | 0.44005634 |
| | = | 1.8441 |
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 |
| = | (-88.336331826829 - 37.874795677511 | - | 0) | / | 616.7582885502 |
| | = | -0.2046 |
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.
GSX Techedu has a M-score of -1.16 signals that the company is likely to be a manipulator.
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