Earnings quality · updated October 21, 2026
What is the Beneish M-score and how is it calculated
The Beneish M-score looks in a company's numbers for the patterns found at companies that inflated their profit: receivables growing too fast, margins getting worse, expenses pushed into the future. It is not an accusation of fraud, but a signal that the numbers deserve a closer read.
The Beneish M-score formula
- DSRI
- Receivables compared with sales, this year versus last. It rises if the company sells more and more on credit.
- GMI
- How much the gross margin has worsened.
- AQI
- How much of the assets are hard to pin down (capitalized expenses).
- SGI
- Sales growth.
- DEPI
- Whether depreciation has slowed down.
- SGAI
- Selling and admin expenses compared with sales.
- TATA
- The gap between profit and cash, relative to assets.
- LVGI
- How much debt has grown relative to assets.
How to read the Beneish M-score
The classic threshold is −1.78: above it, the numbers look like those of the companies that manipulated their results in the original study.
When the Beneish M-score can fool you
Very fast-growing companies: strong growth in sales and receivables pushes the score up without any manipulation. Banks: the model does not apply.
Related terms
Questions about the Beneish M-score
Does a high score mean fraud?
No. It means the numbers show patterns that, statistically, appear more often at companies that inflated their results. It is a reason to check, not a conclusion.
These explanations are for information only. They are not a recommendation to buy or sell.
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