REV Group 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 REV Group 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 * 0.9546 | + | 0.528 * 1.0456 | + | 0.404 * 0.9423 | + | 0.892 * 0.9476 | + | 0.115 * 1.0651 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0696 | + | 4.679 * -0.0448 | - | 0.327 * 1.0165 |
| = | -2.79 |
* 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 $229 Mil.
Revenue was 616.3 + 582.2 + 547 + 532.1 = $2,278 Mil.
Gross Profit was 61.8 + 66.5 + 52.4 + 47.4 = $228 Mil.
Total Current Assets was $812 Mil.
Total Assets was $1,312 Mil.
Property, Plant and Equipment(Net PPE) was $192 Mil.
Depreciation, Depletion and Amortization(DDA) was $40 Mil.
Selling, General, & Admin. Expense(SGA) was $202 Mil.
Total Current Liabilities was $447 Mil.
Long-Term Debt & Capital Lease Obligation was $357 Mil.
Net Income was -10.2 + -3.6 + -7.6 + -9.4 = $-31 Mil.
Non Operating Income was -17.4 + -6.7 + -3 + -0.6 = $-28 Mil.
Cash Flow from Operations was 30.7 + 3 + 35.3 + -13.3 = $56 Mil.
|
Accounts Receivable was $254 Mil.
Revenue was 652.9 + 617 + 615 + 518.7 = $2,404 Mil.
Gross Profit was 61.7 + 71.3 + 72.4 + 46.3 = $252 Mil.
Total Current Assets was $809 Mil.
Total Assets was $1,347 Mil.
Property, Plant and Equipment(Net PPE) was $202 Mil.
Depreciation, Depletion and Amortization(DDA) was $46 Mil.
Selling, General, & Admin. Expense(SGA) was $199 Mil.
Total Current Liabilities was $436 Mil.
Long-Term Debt & Capital Lease Obligation was $377 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) |
| = | (229.3 / 2277.6) | / | (253.5 / 2403.6) |
| = | 0.10067615 | / | 0.1054668 |
| | = | 0.9546 |
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) |
| = | (251.7 / 2403.6) | / | (228.1 / 2277.6) |
| = | 0.10471792 | / | 0.10014928 |
| | = | 1.0456 |
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 - (812 + 191.6) / 1312.3) | / | (1 - (809.1 + 201.7) / 1347.1) |
| = | 0.23523585 | / | 0.24964739 |
| | = | 0.9423 |
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 |
| = | 2277.6 | / | 2403.6 |
| | = | 0.9476 |
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)) |
| = | (45.7 / (45.7 + 201.7)) | / | (40.2 / (40.2 + 191.6)) |
| = | 0.1847211 | / | 0.17342537 |
| | = | 1.0651 |
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) |
| = | (202 / 2277.6) | / | (199.3 / 2403.6) |
| = | 0.08868985 | / | 0.08291729 |
| | = | 1.0696 |
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) |
| = | ((357.4 + 447.3) / 1312.3) | / | ((376.6 + 436) / 1347.1) |
| = | 0.6131982 | / | 0.60322174 |
| | = | 1.0165 |
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 |
| = | (-30.8 - -27.7 | - | 55.7) | / | 1312.3 |
| | = | -0.0448 |
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.
REV Group has a M-score of -2.79 suggests that the company is unlikely to be a manipulator.
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