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GuruFocus has detected 4 Warning Signs with ABB Ltd $ABB.
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ABB Ltd (NYSE:ABB)
Beneish M-Score
-2.71 (As of Today)

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.

ABB Ltd has a M-score of -2.73 suggests that the company is not a manipulator.

ABB' s Beneish M-Score Range Over the Past 10 Years
Min: -2.94   Max: -2.24
Current: -2.71

-2.94
-2.24

During the past 13 years, the highest Beneish M-Score of ABB Ltd was -2.24. The lowest was -2.94. And the median was -2.60.


Definition

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 * 1.0094+0.528 * 0.9926+0.404 * 1.0304+0.892 * 0.9699+0.115 * 0.9344
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0041+4.679 * -0.049-0.327 * 0.9968
=-2.73

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Mar17) TTM:Last Year (Mar16) TTM:
Accounts Receivable was $9,918 Mil.
Revenue was 7854 + 8993 + 8255 + 8677 = $33,779 Mil.
Gross Profit was 2373 + 2515 + 2459 + 2415 = $9,762 Mil.
Total Current Assets was $22,207 Mil.
Total Assets was $40,306 Mil.
Property, Plant and Equipment(Net PPE) was $4,805 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,118 Mil.
Selling, General & Admin. Expense(SGA) was $5,390 Mil.
Total Current Liabilities was $15,153 Mil.
Long-Term Debt was $5,885 Mil.
Net Income was 724 + 425 + 568 + 406 = $2,123 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 509 + 1428 + 1081 + 1082 = $4,100 Mil.
Accounts Receivable was $10,131 Mil.
Revenue was 7903 + 9242 + 8519 + 9165 = $34,829 Mil.
Gross Profit was 2358 + 2395 + 2518 + 2720 = $9,991 Mil.
Total Current Assets was $23,083 Mil.
Total Assets was $41,814 Mil.
Property, Plant and Equipment(Net PPE) was $5,347 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,145 Mil.
Selling, General & Admin. Expense(SGA) was $5,535 Mil.
Total Current Liabilities was $15,770 Mil.
Long-Term Debt was $6,126 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(9918 / 33779) / (10131 / 34829)
=0.29361438 / 0.29087829
=1.0094

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(9991 / 34829) / (9762 / 33779)
=0.28685865 / 0.28899612
=0.9926

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (22207 + 4805) / 40306) / (1 - (23083 + 5347) / 41814)
=0.32982682 / 0.32008418
=1.0304

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=33779 / 34829
=0.9699

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))
=(1145 / (1145 + 5347)) / (1118 / (1118 + 4805))
=0.17637092 / 0.1887557
=0.9344

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)
=(5390 / 33779) / (5535 / 34829)
=0.15956659 / 0.15891929
=1.0041

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)
=((5885 + 15153) / 40306) / ((6126 + 15770) / 41814)
=0.52195703 / 0.52365237
=0.9968

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(2123 - 0 - 4100) / 40306
=-0.049

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 -2.73 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

ABB Ltd Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.96960.96841.12251.06180.89850.71380.9870.96961.04721.0629
GMI 0.94260.98071.06840.97231.00231.04051.00941.01770.98580.9913
AQI 0.77991.06170.98981.1621.51931.11691.03880.99131.01511.0074
SGI 1.25351.19630.91070.99351.20261.03541.06390.95180.89080.9534
DEPI 1.08340.99951.12960.99840.82531.01420.95250.92791.04080.9334
SGAI 0.91740.97820.8471.03430.96811.03460.99521.0461.03141.0065
LVGI 0.86141.01240.88891.02111.01351.08220.93381.01241.03361.0172
TATA 0.0205-0.0254-0.0324-0.0451-0.0112-0.0219-0.018-0.0279-0.0456-0.0492
M-score -2.24-2.44-2.49-2.60-2.25-2.78-2.48-2.70-2.76-2.71

ABB Ltd Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 0.96960.92771.00331.00081.04721.0681.03491.0321.06291.0094
GMI 1.01771.01020.98760.95770.98580.98441.01281.02370.99130.9926
AQI 0.99131.03581.03211.03441.01510.99770.98160.98861.00741.0304
SGI 0.95180.93530.91150.89540.89080.8950.90640.93140.95340.9699
DEPI 0.92790.91870.98031.02881.04081.09421.04830.97990.93340.9344
SGAI 1.0461.01990.99920.98271.03141.05371.08191.08221.00651.0041
LVGI 1.01241.00521.02270.99521.03361.03311.09341.06581.01720.9968
TATA -0.0279-0.0308-0.0255-0.0299-0.0456-0.0514-0.067-0.0669-0.0492-0.049
M-score -2.70-2.74-2.68-2.71-2.76-2.77-2.88-2.85-2.71-2.73
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