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RATIOS & STATISTICS / ADVANCED
MScoreLVGI
Full Description

From the original Beneish paper

LVGI is the ratio of total debt to total assets in year t relative to the corresponding ratio in year t-1. A LVGI greater than 1 indicates an increase in leverage. The variable is included to capture debt covenants incentives for earnings manipulation. Assuming that leverage follows a random walk, LVGI implicitly measures the leverage forecast error. I use the change in leverage in the firms' capital structure given evidence in Beneish and Press(1993) that such changes are associated with the stock market effect of default.

Beneish Formula

((Long-Term Debt{t} + Current Liabilities{t})/Total Assets{t}) /
((Long-Term Debt{t-1} + Current Liabilities{t-1})/Total Assets{t-1})

Our Formula

((DbtLTQ + CurLiabQ)/AstTotQ) /
((DbtLTPYQ + CurLiabPYQ)/AstTotPYQ)

NOTE: If AstTot during preliminary reporting are N/A , the whole formula excludes the latest period

Related Factors:

BeneishMScore MScoreAQI MScoreDEPAMI MScoreDEPI MScoreDSRI MScoreGMI MScoreLVGI MScoreSGAI MScoreSGAI MScoreTATA