Morgan Stanley 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 Morgan Stanley 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 * 1.0107 | + | 0.528 * 1 | + | 0.404 * 1.1037 | + | 0.892 * 1.0091 | + | 0.115 * 1.0044 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0256 | + | 4.679 * 0.035707 | - | 0.327 * 1.0362 |
| = | -2.27 |
* 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 (Dec23) TTM: | Last Year (Dec22) TTM: |
Total Receivables was $80,105.00 Mil.
Revenue was 12031 + 12418 + 12582 + 13636 = $50,667.00 Mil.
Gross Profit was 12031 + 12418 + 12582 + 13636 = $50,667.00 Mil.
Total Current Assets was $161,489.00 Mil.
Total Assets was $1,193,693.00 Mil.
Property, Plant and Equipment(Net PPE) was $23.00 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,256.00 Mil.
Selling, General, & Admin. Expense(SGA) was $24,795.00 Mil.
Total Current Liabilities was $217,068.00 Mil.
Long-Term Debt & Capital Lease Obligation was $267,467.00 Mil.
Net Income was 1517 + 2408 + 2182 + 2980 = $9,087.00 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.00 Mil.
Cash Flow from Operations was -17752 + 3747 + -9666 + -9865 = $-33,536.00 Mil.
|
Total Receivables was $78,540.00 Mil.
Revenue was 11898 + 12139 + 12254 + 13919 = $50,210.00 Mil.
Gross Profit was 11898 + 12139 + 12254 + 13919 = $50,210.00 Mil.
Total Current Assets was $255,584.00 Mil.
Total Assets was $1,180,231.00 Mil.
Property, Plant and Equipment(Net PPE) was $4.00 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,998.00 Mil.
Selling, General, & Admin. Expense(SGA) was $23,958.00 Mil.
Total Current Liabilities was $221,269.00 Mil.
Long-Term Debt & Capital Lease Obligation was $241,081.00 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total Receivables 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) |
| = | (80105 / 50667) | / | (78540 / 50210) |
| = | 1.581009 | / | 1.56423 |
| | = | 1.0107 |
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) |
| = | (50210 / 50210) | / | (50667 / 50667) |
| = | 1 | / | 1 |
| | = | 1 |
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 - (161489 + 23) / 1193693) | / | (1 - (255584 + 4) / 1180231) |
| = | 0.864696 | / | 0.783442 |
| | = | 1.1037 |
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 |
| = | 50667 | / | 50210 |
| | = | 1.0091 |
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)) |
| = | (3998 / (3998 + 4)) | / | (4256 / (4256 + 23)) |
| = | 0.999 | / | 0.994625 |
| | = | 1.0044 |
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) |
| = | (24795 / 50667) | / | (23958 / 50210) |
| = | 0.489372 | / | 0.477156 |
| | = | 1.0256 |
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) |
| = | ((267467 + 217068) / 1193693) | / | ((241081 + 221269) / 1180231) |
| = | 0.405913 | / | 0.391745 |
| | = | 1.0362 |
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 |
| = | (9087 - 0 | - | -33536) | / | 1193693 |
| | = | 0.035707 |
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.
Morgan Stanley has a M-score of -2.27 suggests that the company is unlikely to be a manipulator.
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