Beneish M-Score
Returns the Beneish M-Score, a probabilistic model used to detect earnings manipulation in financial statements. Developed by Professor Messod Beneish.
Interpretation
| M-Score | Interpretation |
|---|---|
| < -2.22 | Unlikely manipulator |
| > -2.22 | Likely manipulator |
| > -1.78 | High probability of manipulation |
Components (8 Variables)
The M-Score combines eight financial ratios:
- DSRI - Days Sales in Receivables Index
- GMI - Gross Margin Index
- AQI - Asset Quality Index
- SGI - Sales Growth Index
- DEPI - Depreciation Index
- SGAI - SGA Expense Index
- LVGI - Leverage Index
- TATA - Total Accruals to Total Assets
Notes
- More negative is better (less likely manipulation)
- Threshold of -2.22 identifies ~76% of manipulators
- Not definitive proof of fraud, but a red flag indicator
Examples
Get Beneish M-Score
=IF(BeneishMScore()>-2.22,"Flag","OK")When to Use
- Due diligence on potential investments
- Screening for accounting quality
- Fraud detection analysis
- Financial statement analysis
When NOT to Use
| Scenario | Use Instead |
|---|---|
| Bankruptcy prediction | AltmanZScore() |
| Financial strength | FScore() |
| General valuation | PE, PB ratios |
| Credit analysis | Credit metrics |
Common Issues & FAQ
Q: What does a negative M-Score mean? A: Negative is good! An M-Score below -2.22 indicates the company is unlikely to be manipulating earnings.
Q: Can this definitively detect fraud? A: No, it's a probabilistic model. A high M-Score is a red flag that warrants further investigation, not proof of fraud.
Q: Why is -2.22 the threshold? A: Research by Beneish found this threshold correctly identified about 76% of known manipulation cases with acceptable false positive rates.
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