What is the 'Beneish Model'
The Beneish model is a mathematical model that uses financial ratios and eight variables to identify whether a company has manipulated its earnings. The variables are constructed from the data in the company's financial statements and, once calculated, create an MScore to describe the degree to which the earnings have been manipulated.
BREAKING DOWN 'Beneish Model'
The eight variables are:
1. DSRI  Days' sales in receivable index
2. GMI  Gross margin index
3. AQI  Asset quality index
4. SGI  Sales growth index
5. DEPI  Depreciation index
6. SGAI  Sales and general and administrative expenses index
7. LVGI  Leverage index
8. TATA  Total accruals to total assets
Once calculated, the eight variables are combined together to achieve an MScore for the company. An MScore of less than 2.22 suggests that the company will not be a manipulator. An MScore of greater than 2.22 signals that the company is likely to be a manipulator.

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