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The zones of discrimination for M-Score is as such:
An M-Score of less than -2.22 suggests that the company is not an accounting manipulator.
An M-Score of greater than -2.22 signals that the company is likely an accounting manipulator.
During the past 13 years, the highest Beneish M-Score of ABB Ltd was -2.29. The lowest was -2.79. And the median was -2.60.
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Z-Score) or business trend (F-Score), M-score can be used to detect the risk of earnings manipulation. This is the original research paper on M-score.
The M-Score Variables:
The M-score of ABB Ltd for today is based on a combination of the following eight different indices:
|M||=||-4.84||+||0.92 * DSRI||+||0.528 * GMI||+||0.404 * AQI||+||0.892 * SGI||+||0.115 * DEPI|
|=||-4.84||+||0.92 * 0.9696||+||0.528 * 1.0177||+||0.404 * 0.9913||+||0.892 * 0.9518||+||0.115 * 0.9279|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.046||+||4.679 * -0.0279||-||0.327 * 1.0124|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $7,715 Mil.|
Revenue was 10346 + 9823 + 10190 + 9471 = $39,830 Mil.
Gross Profit was 2841 + 2762 + 2885 + 2727 = $11,215 Mil.
Total Current Assets was $24,986 Mil.
Total Assets was $44,878 Mil.
Property, Plant and Equipment(Net PPE) was $5,652 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,305 Mil.
Selling, General & Admin. Expense(SGA) was $6,067 Mil.
Total Current Liabilities was $15,580 Mil.
Long-Term Debt was $7,338 Mil.
Net Income was 680 + 734 + 636 + 544 = $2,594 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 1833 + 1169 + 888 + -45 = $3,845 Mil.
|Accounts Receivable was $8,360 Mil.
Revenue was 11373 + 10535 + 10225 + 9715 = $41,848 Mil.
Gross Profit was 2942 + 3174 + 3025 + 2851 = $11,992 Mil.
Total Current Assets was $26,425 Mil.
Total Assets was $48,064 Mil.
Property, Plant and Equipment(Net PPE) was $6,254 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,318 Mil.
Selling, General & Admin. Expense(SGA) was $6,094 Mil.
Total Current Liabilities was $16,675 Mil.
Long-Term Debt was $7,570 Mil.
1. DSRI = Days Sales in Receivables Index
A large increase in DSR could be indicative of revenue inflation.
|DSRI||=||(Receivables_t / Revenue_t)||/||(Receivables_t-1 / Revenue_t-1)|
|=||(7715 / 39830)||/||(8360 / 41848)|
2. GMI = Gross Margin Index
Measured as the ratio of gross margin in year t-1 to gross margin in year t.
Gross margin has deteriorated when this index is above 1. A firm with poorer prospects is more likely to manipulate earnings.
|=||(GrossProfit_t-1 / Revenue_t-1)||/||(GrossProfit_t / Revenue_t)|
|=||(2762 / 41848)||/||(2841 / 39830)|
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
|AQI||=||(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t)||/||(1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)|
|=||(1 - (24986 + 5652) / 44878)||/||(1 - (26425 + 6254) / 48064)|
4. SGI = Sales Growth Index
Ratio of sales in year t to sales in year t-1.
Sales growth is not itself a measure of manipulation. However, growth companies are likely to find themselves under pressure to manipulate in order to keep up appearances.
5. DEPI = Depreciation Index
Measured as the ratio of the rate of depreciation in year t-1 to the corresponding rate in year t.
DEPI greater than 1 indicates that assets are being depreciated at a slower rate. This suggests that the firm might be revising useful asset life assumptions upwards, or adopting a new method that is income friendly.
|DEPI||=||(Depreciation_t-1 / (Depreciaton_t-1 + PPE_t-1))||/||(Depreciation_t / (Depreciaton_t + PPE_t))|
|=||(1318 / (1318 + 6254))||/||(1305 / (1305 + 5652))|
6. SGAI = Sales, General and Administrative expenses Index
The ratio of SGA expenses in year t relative to year t-1.
SGA expenses index > 1 means that the company is becoming less efficient in generate sales.
|SGAI||=||(SGA_t / Sales_t)||/||(SGA_t-1 /Sales_t-1)|
|=||(6067 / 39830)||/||(6094 / 41848)|
7. LVGI = Leverage Index
The ratio of total debt to total assets in year t relative to yeat t-1.
An LVGI > 1 indicates an increase$sgai= in leverage
|LVGI||=||((LTD_t + CurrentLiabilities_t) / TotalAssets_t)||/||((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1)|
|=||((7338 + 15580) / 44878)||/||((7570 + 16675) / 48064)|
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
|=||(NetIncome_t - NonOperatingIncome_t||-||CashFlowsfromOperations_t)||/||TotalAssets_t|
|=||(2594 - 0||-||3845)||/||44878|
An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.
ABB Ltd has a M-score of -2.70 suggests that the company will not be a manipulator.
Altman Z-Score, Piotroski F-Score, Accounts Receivable, Revenue, Gross Profit, Total Current Assets, Total Assets, Property, Plant and Equipment, Depreciation, Depletion and Amortization, Selling, General & Admin. Expense, Total Current Liabilities, Long-Term Debt, Net Income, Non Operating Income, Cash Flow from Operations
ABB Ltd Annual Data
ABB Ltd Quarterly Data