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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 -2.61.
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 * 1.032||+||0.528 * 1.0237||+||0.404 * 0.9886||+||0.892 * 0.9314||+||0.115 * 0.9799|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0822||+||4.679 * -0.0669||-||0.327 * 1.0658|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $10,155 Mil.|
Revenue was 8255 + 8677 + 7903 + 9242 = $34,077 Mil.
Gross Profit was 2459 + 2415 + 2358 + 2395 = $9,627 Mil.
Total Current Assets was $22,902 Mil.
Total Assets was $40,809 Mil.
Property, Plant and Equipment(Net PPE) was $4,861 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,141 Mil.
Selling, General & Admin. Expense(SGA) was $5,535 Mil.
Total Current Liabilities was $16,177 Mil.
Long-Term Debt was $6,319 Mil.
Net Income was 568 + 406 + 500 + 204 = $1,678 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 1081 + 1082 + 252 + 1994 = $4,409 Mil.
|Accounts Receivable was $10,564 Mil.
Revenue was 8519 + 9165 + 8555 + 10346 = $36,585 Mil.
Gross Profit was 2518 + 2720 + 2501 + 2841 = $10,580 Mil.
Total Current Assets was $23,067 Mil.
Total Assets was $41,768 Mil.
Property, Plant and Equipment(Net PPE) was $5,194 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,189 Mil.
Selling, General & Admin. Expense(SGA) was $5,491 Mil.
Total Current Liabilities was $15,032 Mil.
Long-Term Debt was $6,571 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)|
|=||(10155 / 34077)||/||(10564 / 36585)|
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)|
|=||(10580 / 36585)||/||(9627 / 34077)|
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 - (22902 + 4861) / 40809)||/||(1 - (23067 + 5194) / 41768)|
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))|
|=||(1189 / (1189 + 5194))||/||(1141 / (1141 + 4861))|
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)|
|=||(5535 / 34077)||/||(5491 / 36585)|
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)|
|=||((6319 + 16177) / 40809)||/||((6571 + 15032) / 41768)|
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|
|=||(1678 - 0||-||4409)||/||40809|
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 -2.85 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