How to probe for profits with the 'M score'

A company's M-Score can tell you if it's playing around with its profits. Phil Oakley explains how it works.

When you are weighing up a potential investment, profits are likely to play a big part in your decision. So when you look at the profits figure in a company's annual report, you need to have confidence that the figure is accurate.

Now, the good news is that accounting standards are a lot more rigorous than they used to be. Thus, in most cases, you can believe in the profits that companies report. That said, there is still scope for some firms to bend the rules and deceive people.

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DSRI1.365
GMI2.144
AQI0.771
SGI2.513
DEPI1.110
SGAI0.378
TATA-0.058
LVGI1.354
M-Score-0.55

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.