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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 M-Score to describe the degree to which the earnings have been manipulated.
z Score. A z-score (aka, a standard score) indicates how many standard deviations an element is from the mean. A z-score can be calculated from the following formula. z = (X - Î¼) / Ï. where z is the z-score, X is the value of the element, Î¼ is the population mean, and Ï is the standard deviation.