One of the really cool things about my financial statement fraud class is the ability to apply what is learned in class to a company’s financial statements. Last class, we applied the Beneish M-Score Model to Green Mountain Coffee’s financial statements.
Professor Messod Beneish created the Beneish Model and it uses 8 financial ratios to determine whether a company has manipulated earnings or not. Once these eight ratios are calculated and weighted according to his formula, the score can indicate earnings management or not. A score greater than -2.22 indicates a company is manipulating earnings.
For class, we had to use this model and calculate the different ratios based on Green Mountain Coffee’s financial statements. Although it proved difficult at first to find the numbers to calculate the ratios, we were able to pull numbers from the annual report to calculate the final score.
The final score ended up being less than -2.22, which indicates that earnings probably were not manipulated. Instead of just learning about the model, we were able to calculate the ratios and plug them into the formula to determine if the company has manipulated or not. This class really gives us an hands on experience and provides us with another tool to use in the field.