Beneish M-Score: formula and how to read it

Earnings-quality check; above −1.78 is a warning sign. Eight-variable model of receivables, margins, asset quality, sales growth, depreciation, overheads, leverage and accruals. Not calculated for financial companies.

Stock Meadow groups it under Financial health, and shows it in tables as Beneish M.

M-Score = weighted sum of eight indexes: receivables, gross margin, asset quality, sales growth, depreciation, overheads, leverage and accruals

A company with an M-Score of −2.5 sits below the −1.78 warning level, while one at −1.2 sits above it. The numbers are made up for illustration.

A lower (more negative) score is better. A score above −1.78 is a warning sign that deserves a closer look at the accounts.

When Stock Meadow ranks stocks, a lower figure scores better. On a stock, a score above -1.78 raises an earnings-quality flag. It is a reason to look closer, not proof of wrongdoing.

• A high score is a prompt for investigation, not proof of manipulation. Fast-growing businesses can trigger it legitimately.
• Not calculated for financial companies, or when two years of the statements it needs are unavailable.
• It was calibrated on historic samples and may miss new accounting techniques.

How Stock Meadow handles gaps. Usually blank when two years of the statements it needs aren't available.

Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.

In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.

No fixed-recipe model scores it.

Read about every scoring model on the scoring models page.

• Altman Z-Score: bankruptcy risk; above 3 is safe, below 1.8 is distressed.
• Piotroski F-Score: how many of nine financial-strength tests are passed.
• Operating Cash Flow Growth: how fast cash from operations grew last year.

What does a Beneish M-Score above −1.78 mean?

It is a warning sign that earnings may be less reliable. It is not proof of manipulation, so read the company's statements and notes to see what drives the score.

Is a higher or lower Beneish M better?

When Stock Meadow ranks stocks, a lower figure scores better. That is a ranking convention, so read Beneish M alongside other measures and compare similar companies.

Why is Beneish M blank for some stocks?

It is usually blank when two years of the statements it needs aren't available. Stock Meadow leaves the figure blank rather than guessing it.