Qualcomm 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 Qualcomm 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 * 1.0853 | + | 0.528 * 0.8323 | + | 0.404 * 0.9579 | + | 0.892 * 1.1682 | + | 0.115 * 1.1544 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.7383 | + | 4.679 * -0.1327 | - | 0.327 * 0.9544 |
| = | -2.90 |
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
| This Year (Mar20) TTM: | Last Year (Mar19) TTM: |
Accounts Receivable was $3,081 Mil.
Revenue was 5216 + 5077 + 4814 + 9635 = $24,742 Mil.
Gross Profit was 2919 + 2964 + 2696 + 7521 = $16,100 Mil.
Total Current Assets was $15,313 Mil.
Total Assets was $31,938 Mil.
Property, Plant and Equipment(Net PPE) was $3,358 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,394 Mil.
Selling, General, & Admin. Expense(SGA) was $2,107 Mil.
Total Current Liabilities was $9,774 Mil.
Long-Term Debt & Capital Lease Obligation was $13,449 Mil.
Net Income was 468 + 925 + 506 + 2149 = $4,048 Mil.
Non Operating Income was -294 + -4 + -15 + 263 = $-50 Mil.
Cash Flow from Operations was 1083 + 1118 + 1227 + 4909 = $8,337 Mil.
|
Accounts Receivable was $2,430 Mil.
Revenue was 4982 + 4842 + 5778 + 5577 = $21,179 Mil.
Gross Profit was 2803 + 2654 + 2928 + 3086 = $11,471 Mil.
Total Current Assets was $16,324 Mil.
Total Assets was $34,023 Mil.
Property, Plant and Equipment(Net PPE) was $2,945 Mil.
(DDA) was $1,508 Mil.
Selling, General, & Admin. Expense(SGA) was $2,443 Mil.
Total Current Liabilities was $10,517 Mil.
Long-Term Debt & Capital Lease Obligation was $15,405 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) |
| = | (3081 / 24742) | / | (2430 / 21179) |
| = | 0.1245251 | / | 0.1147363 |
| | = | 1.0853 |
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) |
| = | (11471 / 21179) | / | (16100 / 24742) |
| = | 0.54162142 | / | 0.65071538 |
| | = | 0.8323 |
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 - (15313 + 3358) / 31938) | / | (1 - (16324 + 2945) / 34023) |
| = | 0.41539858 | / | 0.43364783 |
| | = | 0.9579 |
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 |
| = | 24742 | / | 21179 |
| | = | 1.1682 |
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)) |
| = | (1508 / (1508 + 2945)) | / | (1394 / (1394 + 3358)) |
| = | 0.3386481 | / | 0.29335017 |
| | = | 1.1544 |
6. SGAI = Sales, General and Administrative expenses Index
The ratio of c 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) |
| = | (2107 / 24742) | / | (2443 / 21179) |
| = | 0.08515884 | / | 0.11535011 |
| | = | 0.7383 |
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$sgai= in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((13449 + 9774) / 31938) | / | ((15405 + 10517) / 34023) |
| = | 0.72712756 | / | 0.76189636 |
| | = | 0.9544 |
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 |
| = | (4048 - -50 | - | 8337) | / | 31938 |
| | = | -0.1327 |
An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.
Qualcomm has a M-score of -2.90 suggests that the company will not be a manipulator.
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