Prudential Financial 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 Prudential Financial 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 * 1.5498 | + | 0.528 * 1 | + | 0.404 * 0.9882 | + | 0.892 * 0.9323 | + | 0.115 * 1 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.0768 | + | 4.679 * -0.01137 | - | 0.327 * 1.3106 |
| = | -2.21 |
* 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 (Dec23) TTM: | Last Year (Dec22) TTM: |
Total Receivables was €25,905 Mil.
Revenue was 14262.101 + 7876.422 + 12458.654 + 15936.842 = €50,534 Mil.
Gross Profit was 14262.101 + 7876.422 + 12458.654 + 15936.842 = €50,534 Mil.
Total Current Assets was €338,368 Mil.
Total Assets was €661,270 Mil.
Property, Plant and Equipment(Net PPE) was €0 Mil.
Depreciation, Depletion and Amortization(DDA) was €-64 Mil.
Selling, General, & Admin. Expense(SGA) was €12,011 Mil.
Total Current Liabilities was €16,577 Mil.
Long-Term Debt & Capital Lease Obligation was €18,341 Mil.
Net Income was 1207.689 + -751.474 + 471.653 + 1365.508 = €2,293 Mil.
Non Operating Income was 1655.185 + 184.589 + 963.612 + 951.746 = €3,755 Mil.
Cash Flow from Operations was 1011.451 + 2661.08 + 1129.752 + 1254.362 = €6,057 Mil.
|
Total Receivables was €17,929 Mil.
Revenue was 12274.832 + 20391.9 + 10776.832 + 10760.708 = €54,204 Mil.
Gross Profit was 12274.832 + 20391.9 + 10776.832 + 10760.708 = €54,204 Mil.
Total Current Assets was €329,035 Mil.
Total Assets was €650,443 Mil.
Property, Plant and Equipment(Net PPE) was €0 Mil.
Depreciation, Depletion and Amortization(DDA) was €102 Mil.
Selling, General, & Admin. Expense(SGA) was €11,964 Mil.
Total Current Liabilities was €7,343 Mil.
Long-Term Debt & Capital Lease Obligation was €18,863 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) |
| = | (25905.25 / 50534.019) | / | (17929.392 / 54204.272) |
| = | 0.51263 | / | 0.330775 |
| | = | 1.5498 |
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) |
| = | (54204.272 / 54204.272) | / | (50534.019 / 50534.019) |
| = | 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 - (338368.415 + 0) / 661269.791) | / | (1 - (329034.976 + 0) / 650443.376) |
| = | 0.488305 | / | 0.494137 |
| | = | 0.9882 |
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 |
| = | 50534.019 | / | 54204.272 |
| | = | 0.9323 |
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)) |
| = | (102.058 / (102.058 + 0)) | / | (-64.363 / (-64.363 + 0)) |
| = | 1 | / | 1 |
| | = | 1 |
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) |
| = | (12010.713 / 50534.019) | / | (11964.148 / 54204.272) |
| = | 0.237676 | / | 0.220723 |
| | = | 1.0768 |
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) |
| = | ((18340.917 + 16576.609) / 661269.791) | / | ((18863.008 + 7343.376) / 650443.376) |
| = | 0.052804 | / | 0.04029 |
| | = | 1.3106 |
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 |
| = | (2293.376 - 3755.132 | - | 6056.645) | / | 661269.791 |
| | = | -0.01137 |
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.
Prudential Financial has a M-score of -2.21 suggests that the company is unlikely to be a manipulator.
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