C-score: Dodging creative accounting

Almost all of our investment decisions are based on what the companies disclose in their financial statements. We believe whatever they disclose is true and fair, but what if it is not? Companies are known for doing 'creative accounting' or 'window dressing' where they try to enhance their revenue or profits to gain shareholder confidence. They cannot hide it everywhere and there are traces where you can find this manipulation. In our previous articles about essential checks, we looked at Altman Z-score and Piotroski F-score. In this article, we are going to take a look at a score that will help you identify whether a company is doing creative accounting.

What is the modified C-score?
C-score, developed by James Montier, takes into account six parameters to determine whether a company is cooking its books. It indicates the probability of financial manipulations based on a quantitative method. To make the formula much more effective, we at Value Research have added three more points to it making it nine parameters in total. A lower score means there is no evidence of creative accounting and vice versa. To know in detail about the parameters, read our story on modified C-score. Readers should know that although C-score can detect such manipulations on a high probability, it is not 100 per cent certain.

Get the modified C-score for stocks in an instant
It takes a bit of time, work, and you have to scour through statements to calculate the C-score which makes the whole process a bit infuriating. Value Research provides you with the data in an instant. You can go to our stock screener page under the 'Stocks' tab and screen stocks based on modified C-score. For example, here are some companies with a probability of financial manipulations.

Worthwhile read:

Altman Z-score: What does it tell about a company?

Piotroski F-score: Rating a company's financial health