HC2 Holdings 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 HC2 Holdings 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 * 0.2014 | + | 0.528 * 0.5786 | + | 0.404 * 0.7924 | + | 0.892 * 0.9803 | + | 0.115 * 0.2754 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 2.4523 | + | 4.679 * -0.0322 | - | 0.327 * 0.8538 |
| = | -3.97 |
* 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 $58 Mil.
Revenue was 393.3 + 377 + 444.8 + 628.4 = $1,844 Mil.
Gross Profit was 55 + 114.9 + 26.3 + 112.3 = $309 Mil.
Total Current Assets was $5,817 Mil.
Total Assets was $6,688 Mil.
Property, Plant and Equipment(Net PPE) was $214 Mil.
Depreciation, Depletion and Amortization(DDA) was $42 Mil.
Selling, General, & Admin. Expense(SGA) was $279 Mil.
Total Current Liabilities was $343 Mil.
Long-Term Debt & Capital Lease Obligation was $602 Mil.
Net Income was -17.3 + 13.1 + -83.1 + -31 = $-118 Mil.
Non Operating Income was 1.8 + 60.4 + -5.5 + -51.5 = $5 Mil.
Cash Flow from Operations was 29.6 + 12.5 + 35.3 + 14.8 = $92 Mil.
|
Accounts Receivable was $293 Mil.
Revenue was 427.5 + 479.2 + 449 + 524.9 = $1,881 Mil.
Gross Profit was 60.1 + 128.6 + 71.8 + -78.4 = $182 Mil.
Total Current Assets was $5,678 Mil.
Total Assets was $6,946 Mil.
Property, Plant and Equipment(Net PPE) was $406 Mil.
Depreciation, Depletion and Amortization(DDA) was $19 Mil.
Selling, General, & Admin. Expense(SGA) was $116 Mil.
Total Current Liabilities was $344 Mil.
Long-Term Debt & Capital Lease Obligation was $805 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) |
| = | (57.9 / 1843.5) | / | (293.3 / 1880.6) |
| = | 0.03140765 | / | 0.15596086 |
| | = | 0.2014 |
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) |
| = | (182.1 / 1880.6) | / | (308.5 / 1843.5) |
| = | 0.0968308 | / | 0.16734472 |
| | = | 0.5786 |
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 - (5817.4 + 213.8) / 6688.4) | / | (1 - (5678.4 + 405.8) / 6945.5) |
| = | 0.09825967 | / | 0.12400835 |
| | = | 0.7924 |
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 |
| = | 1843.5 | / | 1880.6 |
| | = | 0.9803 |
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)) |
| = | (19.1 / (19.1 + 405.8)) | / | (41.7 / (41.7 + 213.8)) |
| = | 0.04495175 | / | 0.16320939 |
| | = | 0.2754 |
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) |
| = | (279.1 / 1843.5) | / | (116.1 / 1880.6) |
| = | 0.1513968 | / | 0.06173562 |
| | = | 2.4523 |
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) |
| = | ((601.9 + 343.2) / 6688.4) | / | ((805.4 + 344.1) / 6945.5) |
| = | 0.14130435 | / | 0.16550284 |
| | = | 0.8538 |
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 |
| = | (-118.3 - 5.2 | - | 92.2) | / | 6688.4 |
| | = | -0.0322 |
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.
HC2 Holdings has a M-score of -3.97 suggests that the company is unlikely to be a manipulator.
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