Beneish M-score
The Beneish model is a statistical model that uses financial ratios calculated with accounting data of a specific company in order to check if it is likely (high probability) that the reported earnings of the company have been manipulated. == How to calculate == The Beneish M-score is calculated using 8 variables (financial ratios): Days Sales in Receivables Index (DSRI) DSRI = (Net Receivablest / Salest) / (Net Receivablest-1 / Salest-1) Gross Margin Index (GMI) GMI = [(Salest-1 - COGSt-1) / Salest-1] / [(Salest - COGSt) / Salest] Asset Quality Index (AQI) AQI = [1 - (Current Assetst + PP&Et + Securitiest) / Total Assetst] / [1 - ((Current Assetst-1 + PP&Et-1 + Securitiest-1) / Total Assetst-1)] Sales Growth Index (SGI) SGI = Salest / Salest-1 Depreciation Index (DEPI) DEPI = (Depreciationt-1/ (PP&Et-1 + Depreciationt-1)) / (Depreciationt / (PP&Et + Depreciationt)) Sales General and Administrative Expenses Index (SGAI) SGAI = (SG&A Expenset / Salest) / (SG&A Expenset-1 / Salest-1) Leverage Index (LVGI) LVGI = [(Current Liabilitiest + Total Long Term Debtt) / Total Assetst] / [(Current Liabilitiest-1 + Total Long Term Debtt-1) / Total Assetst-1] Total Accruals to Total Assets (TATA) TATA = (Income from Continuing Operationst - Cash Flows from Operationst) / Total Assetst The formula to calculate the M-score is: M-score = −4.84 + 0.92 × DSRI + 0.528 × GMI + 0.404 × AQI + 0.892 × SGI + 0.115 × DEPI −0.172 × SGAI + 4.679 × TATA − 0.327 × LVGI == How to interpret == The threshold value is -1.78 for the model whose coefficients are reported above.