Fair Value Upside (FINBOX)

The Beneish M-Score statistical score that uses financial ratios to identify whether a company has manipulated its earnings. RMR’s Beneish M-Score of −2.69 implies the company is not a likely earnings manipulator.

The Beneish M-Score outlines eight financial ratios required to calculate the score:

1) Days Sales in Receivables Index (DSRI)

DSRI = (Net Receivables_t / Sales_t) / (Net Receivables_t-1 / Sales_t-1)

2) Gross Margin Index (GMI)

GMI = [(Sales_t-1 - COGS_t-1) / Sales_t-1] / [(Sales_t - COGS_t) / Sales_t]

3) Asset Quality Index (AQI)

AQI = [(Total Assets - Current Assets_t - PP&E_t) / Total Assets_t] / [(Total Assets - Current Assets_t-1 - PP&E_t-1) / Total Assets_t-1]

4) Sales Growth Index (SGI)

SGI = Sales_t / Sales_t-1

5) Depreciation Index (DEPI)

DEPI = (Depreciation_t-1/ (PP&E_t-1 + Depreciation_t-1)) / (Depreciation_t / (PP&E_t + Depreciation_t))

6) Sales General and Administrative Expenses Index (SGAI)

SGAI = (SG&A Expense_t / Sales_t) / (SG&A Expense_t-1 / Sales_t-1)

7) Leverage Index (LVGI)

LVGI = [(Current Liabilities_t + Total Long Term Debt_t) / Total Assets_t] / [(Current Liabilities_t-1 + Total Long Term Debt_t-1) / Total Assets_t-1]

8) Total Accruals to Total Assets (TATA)

TATA = (Income from Continuing Operations_t - Cash Flows from Operations_t) / Total Assets_t

After computing the eight variables outlined above, they can be weighted together using the following multivariate model to calculate the score:

Beneish 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