In BriefCreated by Professor Messod Beneish, the M-Score is a mathematical model that uses eight financial ratios to identify whether a company has managed / manipulated its earnings. The variables are constructed from the company’s financial statements and create a score to describe the degree to which the earnings have been manipulated. In many ways it is similar to the Altman Z-Score, but it is focused on detecting earnings manipulation rather than bankruptcy. Interestingly, students from Cornell University using the M score correctly identified Enron as an earnings manipulator, while experienced financial analysts failed to do so.Calculation / Definition of the M-Score The M score is based on a combination of the following eight different indices:DSRI = Days’ Sales in Receivables Index. This measures the ratio of days’ sales in receivables versus prior year as an indicator of revenue inflation.
GMI = Gross Margin Index. This is measured as the ratio of gross margin versus prior year. A firm with poorer prospects is more likely to manipulate earnings.
AQI = Asset Quality Index. Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets, versus prior year.
SGI = Sales Growth Index. This measures the…
Disclaimer: Please note all prices are for information only, they should not be relied upon for accuracy or trading. All prices quotes are based on CFD prices and are similar though not always identical to real exchange prices. STOCKTRKR or anybody connected with STOCKTRKR will not accept any liability for loss or damage arising from use of any information/commentary/charts or articles which is provided 'as is' for educational purposes only, nothing contained on this website should be considered as investment advice - please seek proper investment advice from registered financial broker or institution if you wish to trade on global markets and ensure you are familiar with the risks.
