Philip Morris International 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 Philip Morris International 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 * 0.9797 | + | 0.528 * 0.9711 | + | 0.404 * 1.0314 | + | 0.892 * 0.9627 | + | 0.115 * 0.9505 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.8846 | + | 4.679 * -0.0392 | - | 0.327 * 1.005 |
| = | -2.71 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Dec20) TTM: | Last Year (Dec19) TTM: |
Accounts Receivable was $2,905 Mil.
Revenue was 7444 + 7446 + 6651 + 7153 = $28,694 Mil.
Gross Profit was 4872 + 5030 + 4472 + 4751 = $19,125 Mil.
Total Current Assets was $21,492 Mil.
Total Assets was $44,815 Mil.
Property, Plant and Equipment(Net PPE) was $6,365 Mil.
Depreciation, Depletion and Amortization(DDA) was $981 Mil.
Selling, General, & Admin. Expense(SGA) was $7,481 Mil.
Total Current Liabilities was $19,615 Mil.
Long-Term Debt & Capital Lease Obligation was $28,168 Mil.
Net Income was 1976 + 2307 + 1947 + 1826 = $8,056 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 3162 + 3614 + 1925 + 1111 = $9,812 Mil.
|
Accounts Receivable was $3,080 Mil.
Revenue was 7713 + 7642 + 7699 + 6751 = $29,805 Mil.
Gross Profit was 4935 + 5037 + 5034 + 4286 = $19,292 Mil.
Total Current Assets was $20,514 Mil.
Total Assets was $42,875 Mil.
Property, Plant and Equipment(Net PPE) was $6,631 Mil.
Depreciation, Depletion and Amortization(DDA) was $964 Mil.
Selling, General, & Admin. Expense(SGA) was $8,784 Mil.
Total Current Liabilities was $18,833 Mil.
Long-Term Debt & Capital Lease Obligation was $26,656 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) |
| = | (2905 / 28694) | / | (3080 / 29805) |
| = | 0.10124068 | / | 0.10333837 |
| | = | 0.9797 |
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) |
| = | (19292 / 29805) | / | (19125 / 28694) |
| = | 0.64727395 | / | 0.66651565 |
| | = | 0.9711 |
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 - (21492 + 6365) / 44815) | / | (1 - (20514 + 6631) / 42875) |
| = | 0.37840009 | / | 0.36688047 |
| | = | 1.0314 |
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 |
| = | 28694 | / | 29805 |
| | = | 0.9627 |
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)) |
| = | (964 / (964 + 6631)) | / | (981 / (981 + 6365)) |
| = | 0.12692561 | / | 0.13354206 |
| | = | 0.9505 |
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) |
| = | (7481 / 28694) | / | (8784 / 29805) |
| = | 0.26071653 | / | 0.29471565 |
| | = | 0.8846 |
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) |
| = | ((28168 + 19615) / 44815) | / | ((26656 + 18833) / 42875) |
| = | 1.06622783 | / | 1.06096793 |
| | = | 1.005 |
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 |
| = | (8056 - 0 | - | 9812) | / | 44815 |
| | = | -0.0392 |
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.
Philip Morris International has a M-score of -2.71 suggests that the company is unlikely to be a manipulator.
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