Resideo Technologies 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 Resideo Technologies 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 * 1.039 | + | 0.528 * 0.9888 | + | 0.404 * 0.9262 | + | 0.892 * 1.0166 | + | 0.115 * 0.949 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9672 | + | 4.679 * -0.0107 | - | 0.327 * 0.9282 |
| = | -2.49 |
* 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 $863 Mil.
Revenue was 1501 + 1362 + 1029 + 1179 = $5,071 Mil.
Gross Profit was 423 + 370 + 236 + 284 = $1,313 Mil.
Total Current Assets was $2,225 Mil.
Total Assets was $5,610 Mil.
Property, Plant and Equipment(Net PPE) was $318 Mil.
Depreciation, Depletion and Amortization(DDA) was $86 Mil.
Selling, General, & Admin. Expense(SGA) was $1,002 Mil.
Total Current Liabilities was $1,538 Mil.
Long-Term Debt & Capital Lease Obligation was $1,155 Mil.
Net Income was 59 + 75 + -76 + -21 = $37 Mil.
Non Operating Income was -41 + -35 + -29 + -42 = $-147 Mil.
Cash Flow from Operations was 152 + 21 + 145 + -74 = $244 Mil.
|
Accounts Receivable was $817 Mil.
Revenue was 1304 + 1226 + 1242 + 1216 = $4,988 Mil.
Gross Profit was 313 + 309 + 323 + 332 = $1,277 Mil.
Total Current Assets was $1,785 Mil.
Total Assets was $5,128 Mil.
Property, Plant and Equipment(Net PPE) was $316 Mil.
Depreciation, Depletion and Amortization(DDA) was $80 Mil.
Selling, General, & Admin. Expense(SGA) was $1,019 Mil.
Total Current Liabilities was $1,494 Mil.
Long-Term Debt & Capital Lease Obligation was $1,158 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) |
| = | (863 / 5071) | / | (817 / 4988) |
| = | 0.1701834 | / | 0.1637931 |
| | = | 1.039 |
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) |
| = | (1277 / 4988) | / | (1313 / 5071) |
| = | 0.25601443 | / | 0.25892329 |
| | = | 0.9888 |
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 - (2225 + 318) / 5610) | / | (1 - (1785 + 316) / 5128) |
| = | 0.54670232 | / | 0.59028861 |
| | = | 0.9262 |
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 |
| = | 5071 | / | 4988 |
| | = | 1.0166 |
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)) |
| = | (80 / (80 + 316)) | / | (86 / (86 + 318)) |
| = | 0.2020202 | / | 0.21287129 |
| | = | 0.949 |
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) |
| = | (1002 / 5071) | / | (1019 / 4988) |
| = | 0.19759416 | / | 0.2042903 |
| | = | 0.9672 |
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) |
| = | ((1155 + 1538) / 5610) | / | ((1158 + 1494) / 5128) |
| = | 0.48003565 | / | 0.51716069 |
| | = | 0.9282 |
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 |
| = | (37 - -147 | - | 244) | / | 5610 |
| | = | -0.0107 |
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.
Resideo Technologies has a M-score of -2.49 suggests that the company is unlikely to be a manipulator.
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