Financial Analysis of Vivint Smart Home

Extract

[...] First of all, the Beneish M-Score is a financial model developed by Professor Messod D. Beneish to detect earnings manipulation. It uses eight financial ratios that capture different dimensions of a company's financial performance and stability. The Days Sales in Receivables Index (DSRI) measures the ratio of days' sales in accounts receivable to sales. The Gross Margin Index (GMI) compares the gross margin with the previous year's figure. The Asset Quality Index (AQI) assesses the proportion of non-current assets over total assets. [...]

[...] The Sales, General and Administrative Expenses Index (SGAI) tracks changes in SG&A expenses relative to sales. The Leverage Index (LVGI) indicates a change in leverage ratio. An increase might imply an increased debt burden, which could pressure management to manipulate earnings to meet debt covenants. Last, the Total Accruals to Total Assets (TATA) measures the proportion of accruals in the earnings. In our example for VIVINT SMART HOME, we got a M-Score of -1.868 which is less negative than -2.22 suggesting a lower likelihood of earnings manipulation according to the Beneish model's threshold. [...]

[...] This deviation could indicate potential anomalies that warrant further investigation. However, it will be more accurate to use more financial statements so the diagram representation becomes more precise. Finally, and according to Revenue Recognition Red Flags method, the revenues over time, with spikes may represent red flags for aggressive revenue recognition practices. The occurrence of significant revenue spikes at certain periods, especially if they coincide with the end of reporting periods (like the end of a quarter or fiscal year), could be indicative of a company manipulating its earnings to meet targets. [...]