La-Z-Boy 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 La-Z-Boy 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 * 0.9288 | + | 0.528 * 0.9446 | + | 0.404 * 0.7971 | + | 0.892 * 0.8909 | + | 0.115 * 1.0105 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0188 | + | 4.679 * -0.1204 | - | 0.327 * 1.1616 |
| = | -3.37 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Oct20) TTM: | Last Year (Oct19) TTM: |
Accounts Receivable was $128 Mil.
Revenue was 459.12 + 285.458 + 367.281 + 475.856 = $1,588 Mil.
Gross Profit was 200.555 + 116.363 + 171.706 + 199.638 = $688 Mil.
Total Current Assets was $796 Mil.
Total Assets was $1,650 Mil.
Property, Plant and Equipment(Net PPE) was $553 Mil.
Depreciation, Depletion and Amortization(DDA) was $33 Mil.
Selling, General, & Admin. Expense(SGA) was $543 Mil.
Total Current Liabilities was $490 Mil.
Long-Term Debt & Capital Lease Obligation was $295 Mil.
Net Income was 34.935 + 4.798 + 2.295 + 34.512 = $77 Mil.
Non Operating Income was -0.011 + 1.474 + -26.555 + -5.998 = $-31 Mil.
Cash Flow from Operations was 89.41 + 106.3 + 44.483 + 66.057 = $306 Mil.
|
Accounts Receivable was $155 Mil.
Revenue was 447.212 + 413.633 + 453.791 + 467.582 = $1,782 Mil.
Gross Profit was 182.389 + 167.712 + 189.773 + 189.87 = $730 Mil.
Total Current Assets was $562 Mil.
Total Assets was $1,392 Mil.
Property, Plant and Equipment(Net PPE) was $513 Mil.
Depreciation, Depletion and Amortization(DDA) was $31 Mil.
Selling, General, & Admin. Expense(SGA) was $599 Mil.
Total Current Liabilities was $318 Mil.
Long-Term Debt & Capital Lease Obligation was $252 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) |
| = | (128.324 / 1587.715) | / | (155.086 / 1782.218) |
| = | 0.08082307 | / | 0.08701854 |
| | = | 0.9288 |
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) |
| = | (729.744 / 1782.218) | / | (688.262 / 1587.715) |
| = | 0.40945833 | / | 0.43349216 |
| | = | 0.9446 |
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 - (796.402 + 553.453) / 1650.343) | / | (1 - (561.589 + 512.7) / 1392.328) |
| = | 0.18207609 | / | 0.22842247 |
| | = | 0.7971 |
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 |
| = | 1587.715 | / | 1782.218 |
| | = | 0.8909 |
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)) |
| = | (30.542 / (30.542 + 512.7)) | / | (32.607 / (32.607 + 553.453)) |
| = | 0.05622172 | / | 0.05563765 |
| | = | 1.0105 |
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) |
| = | (543.397 / 1587.715) | / | (598.707 / 1782.218) |
| = | 0.34225097 | / | 0.33593365 |
| | = | 1.0188 |
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) |
| = | ((294.601 + 490.312) / 1650.343) | / | ((252.456 + 317.606) / 1392.328) |
| = | 0.47560598 | / | 0.40943082 |
| | = | 1.1616 |
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 |
| = | (76.54 - -31.09 | - | 306.25) | / | 1650.343 |
| | = | -0.1204 |
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.
La-Z-Boy has a M-score of -3.37 suggests that the company is unlikely to be a manipulator.
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