IDEX 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 IDEX 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 * 0.8681 | + | 0.528 * 1.0211 | + | 0.404 * 0.996 | + | 0.892 * 0.9539 | + | 0.115 * 0.9696 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9982 | + | 4.679 * -0.0379 | - | 0.327 * 1.0881 |
| = | -2.84 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Jun20) TTM: | Last Year (Jun19) TTM: |
Accounts Receivable was $270 Mil.
Revenue was 561.249 + 594.462 + 605.997 + 624.246 = $2,386 Mil.
Gross Profit was 234.8 + 271.956 + 266.885 + 281.978 = $1,056 Mil.
Total Current Assets was $1,397 Mil.
Total Assets was $4,074 Mil.
Property, Plant and Equipment(Net PPE) was $282 Mil.
Depreciation, Depletion and Amortization(DDA) was $80 Mil.
Selling, General, & Admin. Expense(SGA) was $506 Mil.
Total Current Liabilities was $401 Mil.
Long-Term Debt & Capital Lease Obligation was $1,139 Mil.
Net Income was 70.864 + 101.998 + 96.85 + 105.194 = $375 Mil.
Non Operating Income was -10.301 + -1.565 + -8.02 + -13.175 = $-33 Mil.
Cash Flow from Operations was 169.453 + 84.76 + 151.16 + 157.064 = $562 Mil.
|
Accounts Receivable was $326 Mil.
Revenue was 642.099 + 622.231 + 614.094 + 622.888 = $2,501 Mil.
Gross Profit was 292.337 + 283.834 + 273.643 + 280.233 = $1,130 Mil.
Total Current Assets was $1,217 Mil.
Total Assets was $3,640 Mil.
Property, Plant and Equipment(Net PPE) was $275 Mil.
(DDA) was $75 Mil.
Selling, General, & Admin. Expense(SGA) was $532 Mil.
Total Current Liabilities was $362 Mil.
Long-Term Debt & Capital Lease Obligation was $903 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) |
| = | (270.255 / 2385.954) | / | (326.358 / 2501.312) |
| = | 0.11326916 | / | 0.13047473 |
| | = | 0.8681 |
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) |
| = | (1130.047 / 2501.312) | / | (1055.619 / 2385.954) |
| = | 0.4517817 | / | 0.44243057 |
| | = | 1.0211 |
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 - (1397.25 + 281.852) / 4073.592) | / | (1 - (1216.882 + 275.025) / 3640.215) |
| = | 0.58780801 | / | 0.59015965 |
| | = | 0.996 |
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 |
| = | 2385.954 | / | 2501.312 |
| | = | 0.9539 |
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)) |
| = | (74.743 / (74.743 + 275.025)) | / | (79.676 / (79.676 + 281.852)) |
| = | 0.21369308 | / | 0.2203868 |
| | = | 0.9696 |
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) |
| = | (506.387 / 2385.954) | / | (531.829 / 2501.312) |
| = | 0.2122367 | / | 0.21262002 |
| | = | 0.9982 |
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) |
| = | ((1138.948 + 401.307) / 4073.592) | / | ((903.174 + 361.791) / 3640.215) |
| = | 0.37810733 | / | 0.34749733 |
| | = | 1.0881 |
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 |
| = | (374.906 - -33.061 | - | 562.437) | / | 4073.592 |
| | = | -0.0379 |
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.
IDEX has a M-score of -2.84 suggests that the company will not be a manipulator.
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