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GuruFocus has detected 4 Warning Signs with Adobe Systems Inc $ADBE.
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Adobe Systems Inc (NAS:ADBE)
Beneish M-Score
-2.69 (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.

Adobe Systems Inc has a M-score of -2.68 suggests that the company is not a manipulator.

ADBE' s Beneish M-Score Range Over the Past 10 Years
Min: -4.09   Max: -0.98
Current: -2.69

-4.09
-0.98

During the past 13 years, the highest Beneish M-Score of Adobe Systems Inc was -0.98. The lowest was -4.09. And the median was -2.83.


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 Adobe Systems Inc 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 * 1.0154+0.528 * 0.9824+0.404 * 0.9129+0.892 * 1.2208+0.115 * 1.0429
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.92+4.679 * -0.0783-0.327 * 1.0556
=-2.68

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

This Year (Nov16) TTM:Last Year (Nov15) TTM:
Accounts Receivable was $833 Mil.
Revenue was 1608.419 + 1463.967 + 1398.709 + 1383.335 = $5,854 Mil.
Gross Profit was 1391.863 + 1261.266 + 1196.63 + 1184.763 = $5,035 Mil.
Total Current Assets was $5,840 Mil.
Total Assets was $12,707 Mil.
Property, Plant and Equipment(Net PPE) was $816 Mil.
Depreciation, Depletion and Amortization(DDA) was $332 Mil.
Selling, General & Admin. Expense(SGA) was $2,488 Mil.
Total Current Liabilities was $2,812 Mil.
Long-Term Debt was $1,902 Mil.
Net Income was 399.613 + 270.788 + 244.074 + 254.307 = $1,169 Mil.
Non Operating Income was -11.392 + -7.592 + -8.717 + -7.659 = $-35 Mil.
Cash Flow from Operations was 695.601 + 517.885 + 488.715 + 497.527 = $2,200 Mil.
Accounts Receivable was $672 Mil.
Revenue was 1306.404 + 1217.768 + 1162.158 + 1109.181 = $4,796 Mil.
Gross Profit was 1105.043 + 1026.783 + 976.985 + 942.383 = $4,051 Mil.
Total Current Assets was $4,822 Mil.
Total Assets was $11,726 Mil.
Property, Plant and Equipment(Net PPE) was $787 Mil.
Depreciation, Depletion and Amortization(DDA) was $339 Mil.
Selling, General & Admin. Expense(SGA) was $2,215 Mil.
Total Current Liabilities was $2,214 Mil.
Long-Term Debt was $1,907 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)
=(833.033 / 5854.43) / (672.006 / 4795.511)
=0.14229105 / 0.1401323
=1.0154

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)
=(4051.194 / 4795.511) / (5034.522 / 5854.43)
=0.8447888 / 0.85995084
=0.9824

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 - (5839.774 + 816.264) / 12707.114) / (1 - (4821.892 + 787.421) / 11726.472)
=0.47619593 / 0.52165383
=0.9129

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
=5854.43 / 4795.511
=1.2208

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))
=(339.473 / (339.473 + 787.421)) / (331.535 / (331.535 + 816.264))
=0.30124661 / 0.28884413
=1.0429

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)
=(2487.907 / 5854.43) / (2215.161 / 4795.511)
=0.42496144 / 0.46192387
=0.92

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)
=((1902.068 + 2811.635) / 12707.114) / ((1907.231 + 2213.556) / 11726.472)
=0.37094993 / 0.35140893
=1.0556

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
=(1168.782 - -35.36 - 2199.728) / 12707.114
=-0.0783

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.

Adobe Systems Inc has a M-score of -2.68 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.

Adobe Systems Inc Annual Data

Nov07Nov08Nov09Nov10Nov11Nov12Nov13Nov14Nov15Nov16
DSRI 0.72711.29551.06871.04591.03140.93161.05530.96480.9821.0154
GMI 0.99860.98770.99941.00610.99741.00671.04071.00631.00620.9824
AQI 1.04360.95481.27420.90580.94910.95031.10240.91561.04230.9129
SGI 1.22621.13360.82291.28991.10951.04450.92091.02261.15641.2208
DEPI 1.10381.1251.10011.0671.16581.08890.94961.14730.94741.0429
SGAI 0.93180.99931.09090.98530.99691.03761.19141.0030.87250.92
LVGI 1.31331.2811.32531.2520.96650.89971.05681.08351.1131.0556
TATA -0.1247-0.0731-0.0976-0.0397-0.0766-0.0646-0.081-0.0933-0.0721-0.0783
M-score -3.17-2.53-3.03-2.47-2.70-2.79-2.87-2.97-2.70-2.68

Adobe Systems Inc Quarterly Data

Aug14Nov14Feb15May15Aug15Nov15Feb16May16Aug16Nov16
DSRI 1.0240.96480.99180.89231.01340.9820.94481.08751.01221.0154
GMI 1.01471.00631.00891.011.00761.00621.00310.99450.98910.9824
AQI 0.93070.91561.02951.0261.03891.04230.91270.9110.92330.9129
SGI 0.98761.02261.05151.05971.10861.15641.19111.21981.2171.2208
DEPI 1.13321.14731.15361.13580.97890.94740.95570.97661.00221.0429
SGAI 1.081.0030.96220.94110.88530.87250.88370.8790.91130.92
LVGI 1.0841.08351.14141.14581.14941.1131.04041.0241.03741.0556
TATA -0.0902-0.0933-0.0818-0.0846-0.0787-0.0721-0.0828-0.0737-0.0774-0.0783
M-score -2.94-2.97-2.83-2.93-2.75-2.70-2.78-2.58-2.67-2.68
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