R Script Dechow F Score

​Creating a script to calculate the Dechow F-score in R involves similar steps as in Python, but adapted to R’s syntax and functionalities. The Dechow F-score is a statistical measure used to predict the likelihood of earnings manipulation by companies, as developed by Patricia Dechow and colleagues.

Here’s an R script that calculates the Dechow F-score:

calculate_dechow_f_score <- function(net_income, cash_flow_from_operations, total_assets, 

                                     receivables_begin, receivables_end, 

                                     revenues_begin, revenues_end, 

                                     ppe_begin, ppe_end, depreciation) {

  # 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 <- f_score + ifelse(ratio_1 < 1, 1, 0)

  f_score <- f_score + ifelse(ratio_2 < 0, 1, 0)

  f_score <- f_score + ifelse(ratio_3 < 1, 1, 0)

  f_score <- f_score + ifelse(accruals < 0, 1, 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(paste("Dechow F-score:", f_score))

This R script functions similarly to the Python version. You input the necessary financial data, and the script calculates the Dechow F-score based on these inputs. This score ranges from 0 to 4, with higher scores indicating a greater likelihood of earnings manipulation.

To use this script, replace the example input values with actual financial data from the company you are analyzing.