Beneish M-score

Also called: m score, earnings manipulation, accounting red flags

A statistical model of eight accounting ratios that flags patterns seen in companies that manipulated their earnings.

Formula

M = −4.84 + 0.92×DSRI + 0.528×GMI + 0.404×AQI + 0.892×SGI + 0.115×DEPI − 0.172×SGAI + 4.679×Accruals − 0.327×LVGI

Worked example

1. Each ratio compares this year with last: receivables vs sales, margins, asset quality, growth, depreciation, overheads, accruals and leverage

Result: Below −1.78: no red flags

How to read it

Above −1.78 is a reason to read the notes to the accounts more carefully, not proof of wrongdoing. Big acquisitions can trigger it too.

See it with real numbers: Any company page → (free account)