Royal Bank of Canada 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 Royal Bank of Canada 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 * 0.971 | + | 0.528 * 1 | + | 0.404 * 1.0002 | + | 0.892 * 1.0984 | + | 0.115 * 0.9668 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0038 | + | 4.679 * -0.002994 | - | 0.327 * 0.9734 |
| = | -2.43 |
* 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 (Oct24) TTM: | Last Year (Oct23) TTM: |
Total Receivables was €21,946 Mil.
Revenue was 10051.489 + 9874.826 + 9528.565 + 9407.055 = €38,862 Mil.
Gross Profit was 10051.489 + 9874.826 + 9528.565 + 9407.055 = €38,862 Mil.
Total Current Assets was €0 Mil.
Total Assets was €1,449,089 Mil.
Property, Plant and Equipment(Net PPE) was €4,572 Mil.
Depreciation, Depletion and Amortization(DDA) was €2,015 Mil.
Selling, General, & Admin. Expense(SGA) was €14,254 Mil.
Total Current Liabilities was €0 Mil.
Long-Term Debt & Capital Lease Obligation was €225,670 Mil.
Net Income was 2815.325 + 3013.946 + 2690.9 + 2448.365 = €10,969 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = €0 Mil.
Cash Flow from Operations was 11454.814 + 15610.265 + -10634.778 + -1123.649 = €15,307 Mil.
|
Total Receivables was €20,577 Mil.
Revenue was 8914.729 + 8842.244 + 8409.149 + 9215.008 = €35,381 Mil.
Gross Profit was 8914.729 + 8842.244 + 8409.149 + 9215.008 = €35,381 Mil.
Total Current Assets was €0 Mil.
Total Assets was €1,385,782 Mil.
Property, Plant and Equipment(Net PPE) was €4,661 Mil.
Depreciation, Depletion and Amortization(DDA) was €1,957 Mil.
Selling, General, & Admin. Expense(SGA) was €12,929 Mil.
Total Current Liabilities was €0 Mil.
Long-Term Debt & Capital Lease Obligation was €221,715 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) |
| = | (21946.052 / 38861.935) | / | (20576.807 / 35381.13) |
| = | 0.564718 | / | 0.581576 |
| | = | 0.971 |
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) |
| = | (35381.13 / 35381.13) | / | (38861.935 / 38861.935) |
| = | 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 - (0 + 4572.317) / 1449089.392) | / | (1 - (0 + 4661.102) / 1385782.422) |
| = | 0.996845 | / | 0.996636 |
| | = | 1.0002 |
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 |
| = | 38861.935 | / | 35381.13 |
| | = | 1.0984 |
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)) |
| = | (1956.999 / (1956.999 + 4661.102)) | / | (2014.555 / (2014.555 + 4572.317)) |
| = | 0.295704 | / | 0.305844 |
| | = | 0.9668 |
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) |
| = | (14254.166 / 38861.935) | / | (12928.691 / 35381.13) |
| = | 0.36679 | / | 0.365412 |
| | = | 1.0038 |
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) |
| = | ((225669.717 + 0) / 1449089.392) | / | ((221714.856 + 0) / 1385782.422) |
| = | 0.155732 | / | 0.159993 |
| | = | 0.9734 |
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 |
| = | (10968.536 - 0 | - | 15306.652) | / | 1449089.392 |
| | = | -0.002994 |
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.
Royal Bank of Canada has a M-score of -2.43 suggests that the company is unlikely to be a manipulator.
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