VersaBank 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 VersaBank 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 * 1.0073 | + | 0.528 * 1 | + | 0.404 * 0.9963 | + | 0.892 * 1.3185 | + | 0.115 * 0.9876 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.7743 | + | 4.679 * -0.012508 | - | 0.327 * 0.8082 |
| = | -2.15 |
* 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 (Oct23) TTM: | Last Year (Oct22) TTM: |
Total Receivables was C$24.5 Mil.
Revenue was 29.173 + 26.859 + 26.685 + 25.918 = C$108.6 Mil.
Gross Profit was 29.173 + 26.859 + 26.685 + 25.918 = C$108.6 Mil.
Total Current Assets was C$156.8 Mil.
Total Assets was C$4,201.6 Mil.
Property, Plant and Equipment(Net PPE) was C$10.0 Mil.
Depreciation, Depletion and Amortization(DDA) was C$1.8 Mil.
Selling, General, & Admin. Expense(SGA) was C$46.5 Mil.
Total Current Liabilities was C$17.1 Mil.
Long-Term Debt & Capital Lease Obligation was C$110.6 Mil.
Net Income was 12.479 + 10.003 + 10.263 + 9.417 = C$42.2 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = C$0.0 Mil.
Cash Flow from Operations was 71.895 + -132.553 + 29.172 + 126.203 = C$94.7 Mil.
|
Total Receivables was C$18.5 Mil.
Revenue was 24.252 + 21.239 + 18.635 + 18.266 = C$82.4 Mil.
Gross Profit was 24.252 + 21.239 + 18.635 + 18.266 = C$82.4 Mil.
Total Current Assets was C$107.1 Mil.
Total Assets was C$3,266.0 Mil.
Property, Plant and Equipment(Net PPE) was C$11.0 Mil.
Depreciation, Depletion and Amortization(DDA) was C$1.9 Mil.
Selling, General, & Admin. Expense(SGA) was C$45.5 Mil.
Total Current Liabilities was C$13.5 Mil.
Long-Term Debt & Capital Lease Obligation was C$109.4 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) |
| = | (24.539 / 108.635) | / | (18.476 / 82.392) |
| = | 0.225885 | / | 0.224245 |
| | = | 1.0073 |
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) |
| = | (82.392 / 82.392) | / | (108.635 / 108.635) |
| = | 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 - (156.781 + 9.963) / 4201.61) | / | (1 - (107.057 + 10.99) / 3265.998) |
| = | 0.960314 | / | 0.963856 |
| | = | 0.9963 |
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 |
| = | 108.635 | / | 82.392 |
| | = | 1.3185 |
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)) |
| = | (1.938 / (1.938 + 10.99)) | / | (1.783 / (1.783 + 9.963)) |
| = | 0.149907 | / | 0.151796 |
| | = | 0.9876 |
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) |
| = | (46.479 / 108.635) | / | (45.528 / 82.392) |
| = | 0.427846 | / | 0.552578 |
| | = | 0.7743 |
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) |
| = | ((110.621 + 17.147) / 4201.61) | / | ((109.422 + 13.459) / 3265.998) |
| = | 0.030409 | / | 0.037624 |
| | = | 0.8082 |
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 |
| = | (42.162 - 0 | - | 94.717) | / | 4201.61 |
| | = | -0.012508 |
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.
VersaBank has a M-score of -2.15 suggests that the company is unlikely to be a manipulator.
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