Beneish Model Definition

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Definition Of Beneish Model:

A mathematical model that uses financial ratiosand eight variables to identifywhether a company has manipulated its earnings.
The variables are constructed from the data in the company's financial statements and, once calculated, create an M-Score to describe the degree to which the earnings have been manipulated.Theeight variables are:1. DSRI - Days' sales in receivable index2. GMI - Gross margin index3. AQI - Asset quality index4. SGI - Sales growth index5. DEPI - Depreciation index6. SGAI - Sales andgeneral and administrative expenses index7. LVGI - Leverage index8. TATA - Total accruals to total assetsOnce calculated, the eightvariables are combined together to achieve an M-Score for the company. An M-Score ofless than-2.22suggests that the companywill notbe a manipulator.An M-Score of greater than -2.22signals that the company is likely tobe a manipulator.

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