Veeva Systems 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 Veeva Systems 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 * 1.1658 | + | 0.528 * 1.0213 | + | 0.404 * 2.7798 | + | 0.892 * 1.3463 | + | 0.115 * 0.7338 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0348 | + | 4.679 * -0.0651 | - | 0.327 * 1.0475 |
| = | -1.65 |
* 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 $183 Mil.
Revenue was 377.519 + 353.683 + 337.106 + 311.508 = $1,380 Mil.
Gross Profit was 274.522 + 256.479 + 242.226 + 217.189 = $990 Mil.
Total Current Assets was $1,853 Mil.
Total Assets was $2,584 Mil.
Property, Plant and Equipment(Net PPE) was $107 Mil.
Depreciation, Depletion and Amortization(DDA) was $31 Mil.
Selling, General, & Admin. Expense(SGA) was $378 Mil.
Total Current Liabilities was $417 Mil.
Long-Term Debt & Capital Lease Obligation was $48 Mil.
Net Income was 96.959 + 93.551 + 86.57 + 66.182 = $343 Mil.
Non Operating Income was 3.455 + 2.881 + 3.414 + -20.341 = $-11 Mil.
Cash Flow from Operations was 95.403 + 105.32 + 282.172 + 39.109 = $522 Mil.
|
Accounts Receivable was $117 Mil.
Revenue was 280.921 + 266.9 + 244.752 + 232.323 = $1,025 Mil.
Gross Profit was 207.592 + 196.682 + 179.249 + 167.797 = $751 Mil.
Total Current Assets was $1,658 Mil.
Total Assets was $1,900 Mil.
Property, Plant and Equipment(Net PPE) was $77 Mil.
Depreciation, Depletion and Amortization(DDA) was $15 Mil.
Selling, General, & Admin. Expense(SGA) was $271 Mil.
Total Current Liabilities was $307 Mil.
Long-Term Debt & Capital Lease Obligation was $20 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) |
| = | (183.435 / 1379.816) | / | (116.874 / 1024.896) |
| = | 0.13294164 | / | 0.11403499 |
| | = | 1.1658 |
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) |
| = | (751.32 / 1024.896) | / | (990.416 / 1379.816) |
| = | 0.7330695 | / | 0.71778846 |
| | = | 1.0213 |
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 - (1852.997 + 107.176) / 2583.641) | / | (1 - (1658.121 + 77.345) / 1900.441) |
| = | 0.24131371 | / | 0.0868088 |
| | = | 2.7798 |
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 |
| = | 1379.816 | / | 1024.896 |
| | = | 1.3463 |
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)) |
| = | (15.22 / (15.22 + 77.345)) | / | (30.953 / (30.953 + 107.176)) |
| = | 0.164425 | / | 0.22408763 |
| | = | 0.7338 |
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) |
| = | (377.588 / 1379.816) | / | (271.044 / 1024.896) |
| = | 0.27365098 | / | 0.26446 |
| | = | 1.0348 |
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) |
| = | ((47.965 + 417.392) / 2583.641) | / | ((19.882 + 306.897) / 1900.441) |
| = | 0.18011674 | / | 0.17194904 |
| | = | 1.0475 |
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 |
| = | (343.262 - -10.591 | - | 522.004) | / | 2583.641 |
| | = | -0.0651 |
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.
Veeva Systems has a M-score of -1.65 signals that the company is likely to be a manipulator.
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