Python for Dechow F Score

​The Dechow F-score is a financial analysis tool used to predict the likelihood of earnings manipulation by companies. It was developed by Patricia Dechow and her colleagues. The score is based on a set of financial ratios and other indicators.

Here is a script in Python to calculate the Dechow F-score. This script assumes that you have the necessary financial data for the company you are analyzing. The financial data typically includes measures like net income, cash flow from operations, total assets, and others.

def calculate_dechow_f_score(net_income, cash_flow_from_operations, total_assets, receivables_begin, receivables_end, revenues_begin, revenues_end, ppe_begin, ppe_end, depreciation):

    """

    Calculate Dechow F-score to detect earnings manipulation.

    

    :param net_income: Net income of the company

    :param cash_flow_from_operations: Cash flow from operations

    :param total_assets: Total assets of the company

    :param receivables_begin: Receivables at the beginning of the period

    :param receivables_end: Receivables at the end of the period

    :param revenues_begin: Revenues at the beginning of the period

    :param revenues_end: Revenues at the end of the period

    :param ppe_begin: Property, Plant, and Equipment at the beginning of the period

    :param ppe_end: Property, Plant, and Equipment at the end of the period

    :param depreciation: Depreciation expense

    :return: Dechow F-score

    """

    # Ratio of net income to cash flow from operations

    ratio_1 = net_income / cash_flow_from_operations

    # Change in receivables relative to change in revenues

    delta_receivables = receivables_end - receivables_begin

    delta_revenues = revenues_end - revenues_begin

    ratio_2 = delta_receivables / delta_revenues

    # Ratio of gross property, plant, and equipment to total assets

    average_ppe = (ppe_begin + ppe_end) / 2

    ratio_3 = average_ppe / total_assets

    # Accruals

    accruals = (net_income - cash_flow_from_operations) / total_assets

    # Dechow F-score calculation

    f_score = 0

    f_score += 1 if ratio_1 < 1 else 0

    f_score += 1 if ratio_2 < 0 else 0

    f_score += 1 if ratio_3 < 1 else 0

    f_score += 1 if accruals < 0 else 0

    return f_score

# Example usage

f_score = calculate_dechow_f_score(net_income=100000, cash_flow_from_operations=120000, total_assets=500000,

                                   receivables_begin=20000, receivables_end=30000, revenues_begin=100000, revenues_end=150000,

                                   ppe_begin=250000, ppe_end=300000, depreciation=10000)

print("Dechow F-score:", f_score)

To use this script, replace the example values with the actual financial data for the company you’re analyzing. The Dechow F-score ranges from 0 to 4, with higher scores indicating a greater likelihood of earnings manipulation.