Glossary term
Beneish M-Score
Messod Beneish's 1999 earnings-manipulation probe: eight indexes of statement distortion combined into one score. Above −1.78 flags manipulation risk; below −2.22 is the unlikely zone.
Definition & Formula
The M-Score combines eight year-over-year indexes — receivables versus sales (DSRI), gross-margin fade (GMI), asset quality (AQI), sales growth (SGI), depreciation slowdown (DEPI), SG&A trend (SGAI), total accruals (TATA) and leverage change (LVGI) — each weighted from Beneish's 1999 fit on companies later caught manipulating earnings. Scores above −1.78 fall in the historical manipulator range; below −2.22 is comfortably unlikely. The famous validation: applying the model retroactively flagged Enron before the collapse.
False Positives in Hypergrowth
The sales-growth index treats rapid expansion itself as a risk factor — manipulators are disproportionately fast growers, but so are genuinely booming businesses. A company doubling revenue can cross the −1.78 line on SGI alone with clean books. The score is therefore a prompt for statement reading, not a verdict: check whether receivables, margins and accruals corroborate the flag before concluding anything.
How Closelook Uses It
The M-Score appears on the stock pages in the established-scores layer with both canonical thresholds shown. It deliberately does not feed the Closelook Company Score composite in v1 — a manipulation probe is a flag to investigate, not a quantity to average away.