What is the Beneish M-Score?
A statistical model created by Professor Messod Beneish. It uses financial ratios determined with the accounting data of an individual company to check if the company’s reported earnings have been manipulated.
Where have you heard about the Beneish M-Score?
Students at Cornel University used the Beneish Model to name Enron Company as earnings manipulators. This case was noteworthy because, at the time, financial analysts were still recommending to buy Enron shares.
What you need to know about the Beneish M-Score.
The score can be determine by using 8 financial ratios. If the M-Score is less than -2.22 the company is unlikely of manipulation but if the score is greater than -2.22 then the company is likely to be a manipulator. It is important to note that financial institutions were excluded from the sample in Beneish’s paper when calculating M-Score, meaning that it could potentially be incorrect when detecting fraud among financial companies.