Beneish M-score

A statistical model that combines eight ratios into a single score estimating the likelihood that a company has manipulated its earnings. Values above roughly minus 1.78 are conventionally treated as a flag.

The inputs are all changes year on year: days sales in receivables, gross margin, asset quality, sales growth, depreciation rate, selling and administrative expenses, leverage, and total accruals. Each captures a different way that reported earnings can drift away from economic reality, and the model weights them from a sample of known manipulators.

Its value is as a screen across a universe, not as a verdict on one company. False positives are frequent, particularly for firms growing quickly or changing their business mix, and a genuine fraud can score cleanly if the manipulation does not show up in these eight ratios.

Use it to decide where to spend the afternoon.