Stewart Information Services 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 Stewart Information Services 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 * 1.4426 | + | 0.528 * 1 | + | 0.404 * 0.9979 | + | 0.892 * 0.7355 | + | 0.115 * 0.8998 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.2085 | + | 4.679 * -0.11698 | - | 0.327 * 0.9867 |
| = | -2.90 |
* 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 $125 Mil.
Revenue was 582.169 + 601.714 + 549.154 + 524.305 = $2,257 Mil.
Gross Profit was 582.169 + 601.714 + 549.154 + 524.305 = $2,257 Mil.
Total Current Assets was $397 Mil.
Total Assets was $2,703 Mil.
Property, Plant and Equipment(Net PPE) was $272 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General, & Admin. Expense(SGA) was $713 Mil.
Total Current Liabilities was $190 Mil.
Long-Term Debt & Capital Lease Obligation was $581 Mil.
Net Income was 8.815 + 13.999 + 15.815 + -8.19 = $30 Mil.
Non Operating Income was 61.408 + 68.19 + 71.387 + 62.592 = $264 Mil.
Cash Flow from Operations was 39.464 + 59.533 + 35.107 + -51.062 = $83 Mil.
|
Total Receivables was $118 Mil.
Revenue was 655.909 + 716.399 + 844.073 + 852.916 = $3,069 Mil.
Gross Profit was 655.909 + 716.399 + 844.073 + 852.916 = $3,069 Mil.
Total Current Assets was $390 Mil.
Total Assets was $2,738 Mil.
Property, Plant and Equipment(Net PPE) was $283 Mil.
Depreciation, Depletion and Amortization(DDA) was $57 Mil.
Selling, General, & Admin. Expense(SGA) was $802 Mil.
Total Current Liabilities was $197 Mil.
Long-Term Debt & Capital Lease Obligation was $595 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) |
| = | (124.904 / 2257.342) | / | (117.723 / 3069.297) |
| = | 0.055332 | / | 0.038355 |
| | = | 1.4426 |
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) |
| = | (3069.297 / 3069.297) | / | (2257.342 / 2257.342) |
| = | 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 - (397.292 + 271.573) / 2702.861) | / | (1 - (390.408 + 282.727) / 2737.879) |
| = | 0.752534 | / | 0.75414 |
| | = | 0.9979 |
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 |
| = | 2257.342 | / | 3069.297 |
| | = | 0.7355 |
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)) |
| = | (57.178 / (57.178 + 282.727)) | / | (62.447 / (62.447 + 271.573)) |
| = | 0.168218 | / | 0.186956 |
| | = | 0.8998 |
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) |
| = | (712.794 / 2257.342) | / | (802 / 3069.297) |
| = | 0.315767 | / | 0.261298 |
| | = | 1.2085 |
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) |
| = | ((580.944 + 190.054) / 2702.861) | / | ((595.009 + 196.541) / 2737.879) |
| = | 0.285253 | / | 0.289111 |
| | = | 0.9867 |
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 |
| = | (30.439 - 263.577 | - | 83.042) | / | 2702.861 |
| | = | -0.11698 |
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.
Stewart Information Services has a M-score of -2.90 suggests that the company is unlikely to be a manipulator.
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