Walmart 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 Walmart 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 * 0.9717 | + | 0.528 * 0.9943 | + | 0.404 * 1.0338 | + | 0.892 * 1.0672 | + | 0.115 * 0.8636 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0016 | + | 4.679 * -0.0902 | - | 0.327 * 0.9934 |
| = | -2.87 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Jan21) TTM: | Last Year (Jan20) TTM: |
Accounts Receivable was $6,516 Mil.
Revenue was 152079 + 134708 + 137742 + 134622 = $559,151 Mil.
Gross Profit was 36818 + 34369 + 35053 + 32596 = $138,836 Mil.
Total Current Assets was $90,067 Mil.
Total Assets was $252,496 Mil.
Property, Plant and Equipment(Net PPE) was $109,848 Mil.
Depreciation, Depletion and Amortization(DDA) was $11,152 Mil.
Selling, General, & Admin. Expense(SGA) was $116,288 Mil.
Total Current Liabilities was $92,645 Mil.
Long-Term Debt & Capital Lease Obligation was $57,950 Mil.
Net Income was -2091 + 5135 + 6476 + 3990 = $13,510 Mil.
Non Operating Income was -5586 + 1853 + 3222 + 721 = $210 Mil.
Cash Flow from Operations was 13194 + 3924 + 11939 + 7017 = $36,074 Mil.
|
Accounts Receivable was $6,284 Mil.
Revenue was 141671 + 127991 + 130377 + 123925 = $523,964 Mil.
Gross Profit was 33923 + 32091 + 32454 + 30891 = $129,359 Mil.
Total Current Assets was $61,806 Mil.
Total Assets was $236,495 Mil.
Property, Plant and Equipment(Net PPE) was $127,049 Mil.
Depreciation, Depletion and Amortization(DDA) was $10,987 Mil.
Selling, General, & Admin. Expense(SGA) was $108,791 Mil.
Total Current Liabilities was $77,790 Mil.
Long-Term Debt & Capital Lease Obligation was $64,192 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) |
| = | (6516 / 559151) | / | (6284 / 523964) |
| = | 0.01165338 | / | 0.01199319 |
| | = | 0.9717 |
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) |
| = | (129359 / 523964) | / | (138836 / 559151) |
| = | 0.24688528 | / | 0.24829787 |
| | = | 0.9943 |
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 - (90067 + 109848) / 252496) | / | (1 - (61806 + 127049) / 236495) |
| = | 0.20824488 | / | 0.20144189 |
| | = | 1.0338 |
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 |
| = | 559151 | / | 523964 |
| | = | 1.0672 |
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)) |
| = | (10987 / (10987 + 127049)) | / | (11152 / (11152 + 109848)) |
| = | 0.07959518 | / | 0.09216529 |
| | = | 0.8636 |
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) |
| = | (116288 / 559151) | / | (108791 / 523964) |
| = | 0.20797244 | / | 0.20763068 |
| | = | 1.0016 |
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) |
| = | ((57950 + 92645) / 252496) | / | ((64192 + 77790) / 236495) |
| = | 0.59642529 | / | 0.60035942 |
| | = | 0.9934 |
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 |
| = | (13510 - 210 | - | 36074) | / | 252496 |
| | = | -0.0902 |
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.
Walmart has a M-score of -2.87 suggests that the company is unlikely to be a manipulator.
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