Oscar Health 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 Oscar Health 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 * 0.3002 | + | 0.528 * 1 | + | 0.404 * 1.7338 | + | 0.892 * 1.4209 | + | 0.115 * 0.6135 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.7718 | + | 4.679 * 0.000397 | - | 0.327 * 0.9415 |
| = | -2.44 |
* 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 $494 Mil.
Revenue was 1431.632 + 1439.961 + 1522.124 + 1468.15 = $5,862 Mil.
Gross Profit was 1431.632 + 1439.961 + 1522.124 + 1468.15 = $5,862 Mil.
Total Current Assets was $3,055 Mil.
Total Assets was $3,601 Mil.
Property, Plant and Equipment(Net PPE) was $62 Mil.
Depreciation, Depletion and Amortization(DDA) was $31 Mil.
Selling, General, & Admin. Expense(SGA) was $340 Mil.
Total Current Liabilities was $2,084 Mil.
Long-Term Debt & Capital Lease Obligation was $299 Mil.
Net Income was -150.03 + -65.398 + -15.528 + -39.772 = $-271 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 296.868 + -1149.266 + 165.524 + 414.715 = $-272 Mil.
|
Total Receivables was $1,159 Mil.
Revenue was 1037.66 + 1018.513 + 1058.335 + 1011.076 = $4,126 Mil.
Gross Profit was 1037.66 + 1018.513 + 1058.335 + 1011.076 = $4,126 Mil.
Total Current Assets was $4,115 Mil.
Total Assets was $4,527 Mil.
Property, Plant and Equipment(Net PPE) was $60 Mil.
Depreciation, Depletion and Amortization(DDA) was $15 Mil.
Selling, General, & Admin. Expense(SGA) was $310 Mil.
Total Current Liabilities was $2,883 Mil.
Long-Term Debt & Capital Lease Obligation was $298 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) |
| = | (494.388 / 5861.867) | / | (1159.223 / 4125.584) |
| = | 0.08434 | / | 0.280984 |
| | = | 0.3002 |
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) |
| = | (4125.584 / 4125.584) | / | (5861.867 / 5861.867) |
| = | 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 - (3054.536 + 61.93) / 3601.48) | / | (1 - (4115.105 + 59.888) / 4526.601) |
| = | 0.134671 | / | 0.077676 |
| | = | 1.7338 |
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 |
| = | 5861.867 | / | 4125.584 |
| | = | 1.4209 |
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)) |
| = | (15.283 / (15.283 + 59.888)) | / | (30.694 / (30.694 + 61.93)) |
| = | 0.20331 | / | 0.331383 |
| | = | 0.6135 |
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) |
| = | (339.716 / 5861.867) | / | (309.783 / 4125.584) |
| = | 0.057954 | / | 0.075088 |
| | = | 0.7718 |
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) |
| = | ((298.777 + 2083.951) / 3601.48) | / | ((297.999 + 2882.869) / 4526.601) |
| = | 0.661597 | / | 0.702706 |
| | = | 0.9415 |
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 |
| = | (-270.728 - 0 | - | -272.159) | / | 3601.48 |
| | = | 0.000397 |
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.
Oscar Health has a M-score of -2.44 suggests that the company is unlikely to be a manipulator.
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