The South Financial Group 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 The South Financial Group 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 * 0.9529 | + | 0.528 * 1 | + | 0.404 * 0.9998 | + | 0.892 * 0.8807 | + | 0.115 * 0.8207 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.7763 | + | 4.679 * -0.080016 | - | 0.327 * 1.0758 |
| = | -3.01 |
* 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 (Jun10) TTM: | Last Year (Jun09) TTM: |
Total Receivables was $34.00 Mil.
Revenue was 106.433 + 94.657 + 109.096 + 106.274 = $416.46 Mil.
Gross Profit was 106.433 + 94.657 + 109.096 + 106.274 = $416.46 Mil.
Total Current Assets was $0.00 Mil.
Total Assets was $11,595.37 Mil.
Property, Plant and Equipment(Net PPE) was $253.55 Mil.
Depreciation, Depletion and Amortization(DDA) was $45.83 Mil.
Selling, General, & Admin. Expense(SGA) was $78.64 Mil.
Total Current Liabilities was $0.00 Mil.
Long-Term Debt & Capital Lease Obligation was $1,116.21 Mil.
Net Income was -309.545 + -80.594 + -188.671 + -323.504 = $-902.31 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.00 Mil.
Cash Flow from Operations was 37.562 + 61.994 + -114.841 + 40.79 = $25.51 Mil.
|
Total Receivables was $40.52 Mil.
Revenue was 118.202 + 108.759 + 121.645 + 124.284 = $472.89 Mil.
Gross Profit was 118.202 + 108.759 + 121.645 + 124.284 = $472.89 Mil.
Total Current Assets was $0.00 Mil.
Total Assets was $12,588.23 Mil.
Property, Plant and Equipment(Net PPE) was $273.37 Mil.
Depreciation, Depletion and Amortization(DDA) was $39.28 Mil.
Selling, General, & Admin. Expense(SGA) was $115.02 Mil.
Total Current Liabilities was $0.00 Mil.
Long-Term Debt & Capital Lease Obligation was $1,126.44 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) |
| = | (34.003 / 416.46) | / | (40.517 / 472.89) |
| = | 0.081648 | / | 0.08568 |
| | = | 0.9529 |
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) |
| = | (472.89 / 472.89) | / | (416.46 / 416.46) |
| = | 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 + 253.547) / 11595.369) | / | (1 - (0 + 273.365) / 12588.231) |
| = | 0.978134 | / | 0.978284 |
| | = | 0.9998 |
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 |
| = | 416.46 | / | 472.89 |
| | = | 0.8807 |
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)) |
| = | (39.275 / (39.275 + 273.365)) | / | (45.827 / (45.827 + 253.547)) |
| = | 0.125624 | / | 0.153076 |
| | = | 0.8207 |
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) |
| = | (78.64 / 416.46) | / | (115.023 / 472.89) |
| = | 0.18883 | / | 0.243234 |
| | = | 0.7763 |
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) |
| = | ((1116.206 + 0) / 11595.369) | / | ((1126.435 + 0) / 12588.231) |
| = | 0.096263 | / | 0.089483 |
| | = | 1.0758 |
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 |
| = | (-902.314 - 0 | - | 25.505) | / | 11595.369 |
| | = | -0.080016 |
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.
The South Financial Group has a M-score of -3.01 suggests that the company is unlikely to be a manipulator.
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