Learn  ›  The Beneish M-Score, applied to a real 10-K
Lesson · 8 min read · with NKLA's actual numbers

The Beneish M-Score, applied to a real 10-K

A working example of how forensic accountants spot earnings manipulation — using the eight ratios Daniel Beneish published in 1999, and the numbers Nikola Corporation just filed.

Most forensic-accounting frameworks ask you to memorize a list of red flags. The Beneish M-Score does something more useful: it gives you a single number, derived from eight ratios, that you can compute from any 10-K in about ten minutes. The model was trained on a sample of SEC AAER targets between 1982 and 1992, and in the original paper it correctly classified 76% of manipulators with a 17.5% false-positive rate.

That accuracy isn't the point. The point is that the model forces you to look at the eight ratios it cares about, and it turns out those eight ratios are exactly the ones that matter regardless of whether you bother computing the composite score.

The first ratio: DSRI (Days Sales in Receivables Index)

If receivables are growing faster than sales, the company is either booking revenue earlier in the cycle or getting paid later — both bad. NKLA's DSRI for FY25 is 1.92, meaning days-sales-outstanding rose from 47 to 88 year-over-year.

FS
Recommended · affiliate Financial Shenanigans (Schilit) Chapter 3 walks through the receivables-vs-sales test on three real 10-Ks. View on Amazon →

The second ratio: GMI (Gross Margin Index)

Eroding gross margins, paired with growing sales, are a textbook cocktail for revenue-recognition aggressiveness. NKLA's GMI is 1.41 — meaning prior-year gross margin (already negative) deteriorated 41% further.