Sanlam 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 Sanlam 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 * 0.726 | + | 0.528 * 1 | + | 0.404 * 0.9994 | + | 0.892 * 1.8273 | + | 0.115 * 1.2583 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.7163 | + | 4.679 * 0.028361 | - | 0.327 * 1.3452 |
| = | -1.90 |
* 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 R20,968 Mil.
Revenue was R198,745 Mil.
Gross Profit was R198,745 Mil.
Total Current Assets was R0 Mil.
Total Assets was R990,452 Mil.
Property, Plant and Equipment(Net PPE) was R2,724 Mil.
Depreciation, Depletion and Amortization(DDA) was R1,274 Mil.
Selling, General, & Admin. Expense(SGA) was R18,295 Mil.
Total Current Liabilities was R0 Mil.
Long-Term Debt & Capital Lease Obligation was R8,881 Mil.
Net Income was R14,478 Mil.
Gross Profit was R4,092 Mil.
Cash Flow from Operations was R-17,704 Mil.
|
Total Receivables was R15,806 Mil.
Revenue was R108,766 Mil.
Gross Profit was R108,766 Mil.
Total Current Assets was R0 Mil.
Total Assets was R998,154 Mil.
Property, Plant and Equipment(Net PPE) was R2,126 Mil.
Depreciation, Depletion and Amortization(DDA) was R1,423 Mil.
Selling, General, & Admin. Expense(SGA) was R13,978 Mil.
Total Current Liabilities was R0 Mil.
Long-Term Debt & Capital Lease Obligation was R6,654 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) |
| = | (20968 / 198745) | / | (15806 / 108766) |
| = | 0.105502 | / | 0.145321 |
| | = | 0.726 |
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) |
| = | (108766 / 108766) | / | (198745 / 198745) |
| = | 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 + 2724) / 990452) | / | (1 - (0 + 2126) / 998154) |
| = | 0.99725 | / | 0.99787 |
| | = | 0.9994 |
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 |
| = | 198745 | / | 108766 |
| | = | 1.8273 |
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)) |
| = | (1423 / (1423 + 2126)) | / | (1274 / (1274 + 2724)) |
| = | 0.400958 | / | 0.318659 |
| | = | 1.2583 |
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) |
| = | (18295 / 198745) | / | (13978 / 108766) |
| = | 0.092053 | / | 0.128514 |
| | = | 0.7163 |
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) |
| = | ((8881 + 0) / 990452) | / | ((6654 + 0) / 998154) |
| = | 0.008967 | / | 0.006666 |
| | = | 1.3452 |
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 |
| = | (14478 - 4092 | - | -17704) | / | 990452 |
| | = | 0.028361 |
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.
Sanlam has a M-score of -1.90 suggests that the company is unlikely to be a manipulator.
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