Berkshire Hathaway 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 Berkshire Hathaway 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 * 0.6991 | + | 0.528 * 1 | + | 0.404 * 1.004 | + | 0.892 * 1.4398 | + | 0.115 * 0.9458 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.7304 | + | 4.679 * -0.224204 | - | 0.327 * 0.9271 |
| = | -3.35 |
* 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 (Mar24) TTM: | Last Year (Mar23) TTM: |
Total Receivables was $52,835 Mil.
Revenue was 91745 + 130190 + 63432 + 125564 = $410,931 Mil.
Gross Profit was 91745 + 130190 + 63432 + 125564 = $410,931 Mil.
Total Current Assets was $0 Mil.
Total Assets was $1,070,035 Mil.
Property, Plant and Equipment(Net PPE) was $217,500 Mil.
Depreciation, Depletion and Amortization(DDA) was $12,603 Mil.
Selling, General, & Admin. Expense(SGA) was $28,027 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt & Capital Lease Obligation was $120,096 Mil.
Net Income was 12702 + 37574 + -12767 + 35912 = $73,421 Mil.
Non Operating Income was 63021 + 66210 + 66421 + 66606 = $262,258 Mil.
Cash Flow from Operations was 10566 + 14400 + 13669 + 12434 = $51,069 Mil.
|
Total Receivables was $52,488 Mil.
Revenue was 120151 + 92535 + 63439 + 9282 = $285,407 Mil.
Gross Profit was 120151 + 92535 + 63439 + 9282 = $285,407 Mil.
Total Current Assets was $0 Mil.
Total Assets was $997,072 Mil.
Property, Plant and Equipment(Net PPE) was $205,855 Mil.
Depreciation, Depletion and Amortization(DDA) was $11,247 Mil.
Selling, General, & Admin. Expense(SGA) was $26,652 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt & Capital Lease Obligation was $120,701 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) |
| = | (52835 / 410931) | / | (52488 / 285407) |
| = | 0.128574 | / | 0.183906 |
| | = | 0.6991 |
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) |
| = | (285407 / 285407) | / | (410931 / 410931) |
| = | 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 + 217500) / 1070035) | / | (1 - (0 + 205855) / 997072) |
| = | 0.796736 | / | 0.79354 |
| | = | 1.004 |
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 |
| = | 410931 | / | 285407 |
| | = | 1.4398 |
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)) |
| = | (11247 / (11247 + 205855)) | / | (12603 / (12603 + 217500)) |
| = | 0.051805 | / | 0.054771 |
| | = | 0.9458 |
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) |
| = | (28027 / 410931) | / | (26652 / 285407) |
| = | 0.068204 | / | 0.093382 |
| | = | 0.7304 |
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) |
| = | ((120096 + 0) / 1070035) | / | ((120701 + 0) / 997072) |
| = | 0.112236 | / | 0.121055 |
| | = | 0.9271 |
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 |
| = | (73421 - 262258 | - | 51069) | / | 1070035 |
| | = | -0.224204 |
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.
Berkshire Hathaway has a M-score of -3.35 suggests that the company is unlikely to be a manipulator.
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