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Beneish M-Score Screen 200 Qualifying

The Beneish M-Score is a checklist for identifying stocks that might be manipulating their earning figures. It was created by US finance Professor Messod Daniel Beneish and presented in a paper called The Predictable Cost of Earnings Manipulation. The M-Score is a red flag indicator that is often used as part of a short selling strategy. It calculates and distils eight different accounting variables into a single score. Generally, a score greater than -1.78 (i.e. a less negative or positive number) indicates an increased likelihood of a firm being an earnings manipulator. Beneish wrote: "We show that firms with a high probability of overstated earnings have lower future earnings, less persistent income-increasing accruals, and lower future returns." The M-score strategy apparently generated a hedged return of nearly 14% per year, mostly from the short positions.

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This is an independent study based upon the methods of...
Picture of Messod Daniel Beneish

Messod Daniel Beneish

Professor of Accounting at the Kelley School of Business, Indiana University.

Detection of Earnings Manipulation

by Messod Beneish

In his "Detection of Earnings Manipulation" paper, Beneish found that the M-Score test could correctly identify 76% of manipulators, whilst only incorrectly identifying 17.5% of non-manipulators. In a subsequent 2007 paper -  The Predictable Cost of Earnings Manipulation - Beneish examines the use of the M score as a stock selection technique (over the period 1993-2003). The M-score strategy apparently generated a hedged return of nearly 14% per annum.

This screen uses the following criteria:

  • Beneish M Score, Last Yr > -1.78
  • Beneish M Score 1y Ago > -1.78
  • Economic Sector not in (Financials)

Results are sorted by:

  • P/B in descending order


And limited to the first 200 Results


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Performance Tracking


Returns FTSE 100
1 week -2.2% -0.0% -2.2% 0.9% -1.4% -3.0% -0.3% 1.0%
1 month -8.3% -3.5% -4.2% 2.2% -9.7% -9.1% 0.7% -2.7%
3 months -22.8% -17.5% -18.2% -13.9% -22.6% -24.5% -9.7% -6.3%
6 months -25.8% -21.7% -23.0% -21.1% -23.9% -30.7% -1.1% -11.9%
1 year -24.0% -28.2% -9.0% -28.7% -13.5% -17.4% -17.9% -8.1%
2 years -30.5% -9.5% -11.0% -20.4% -6.6% -15.1% -23.1% -1.5%
Annualised -5.1% -5.6% -2.4% -2.4% 12.3% -4.2% -9.0%
 
Risks
Max Drawdown -44.7% -40.8% -40.2% -44.4% -32.9% -32.7% -38.9%
Avg Holdings 24.2 25 24.9 25 18.1 25 23.6
Diversification Good Good Good Good Good Good Good