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GuruFocus has detected 3 Warning Signs with ARRIS International PLC $ARRS.
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ARRIS International PLC (NAS:ARRS)
Beneish M-Score
-1.68 (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.

ARRIS International PLC has a M-score of -1.68 signals that the company is a manipulator.

ARRS' s Beneish M-Score Range Over the Past 10 Years
Min: -4.14   Max: -1.04
Current: -1.68

-4.14
-1.04

During the past 13 years, the highest Beneish M-Score of ARRIS International PLC was -1.04. The lowest was -4.14. And the median was -2.53.


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 ARRIS International PLC 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 * 1.4652+0.528 * 1.1826+0.404 * 1.1447+0.892 * 1.4232+0.115 * 0.8445
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.7651+4.679 * -0.0429-0.327 * 0.9329
=-1.68

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

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $1,359 Mil.
Revenue was 1759.223 + 1725.145 + 1730.044 + 1614.706 = $6,829 Mil.
Gross Profit was 436 + 442.85 + 444.734 + 384.032 = $1,708 Mil.
Total Current Assets was $3,280 Mil.
Total Assets was $7,758 Mil.
Property, Plant and Equipment(Net PPE) was $353 Mil.
Depreciation, Depletion and Amortization(DDA) was $495 Mil.
Selling, General & Admin. Expense(SGA) was $454 Mil.
Total Current Liabilities was $1,834 Mil.
Long-Term Debt was $2,180 Mil.
Net Income was 88.283 + 48.162 + 84.228 + -202.573 = $18 Mil.
Non Operating Income was 21.964 + -17.51 + -1.807 + -13.85 = $-11 Mil.
Cash Flow from Operations was 35.299 + 288.967 + 260.764 + -222.535 = $362 Mil.
Accounts Receivable was $652 Mil.
Revenue was 1101.682 + 1221.416 + 1260.077 + 1215.158 = $4,798 Mil.
Gross Profit was 358.673 + 359.333 + 364.361 + 336.556 = $1,419 Mil.
Total Current Assets was $2,110 Mil.
Total Assets was $4,524 Mil.
Property, Plant and Equipment(Net PPE) was $312 Mil.
Depreciation, Depletion and Amortization(DDA) was $303 Mil.
Selling, General & Admin. Expense(SGA) was $417 Mil.
Total Current Liabilities was $1,013 Mil.
Long-Term Debt was $1,496 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)
=(1359.43 / 6829.118) / (651.893 / 4798.333)
=0.19906377 / 0.13585822
=1.4652

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)
=(1418.923 / 4798.333) / (1707.616 / 6829.118)
=0.29571166 / 0.25004927
=1.1826

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 - (3280.072 + 353.377) / 7758.362) / (1 - (2110.203 + 312.311) / 4523.516)
=0.53167318 / 0.46446216
=1.1447

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
=6829.118 / 4798.333
=1.4232

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))
=(303.37 / (303.37 + 312.311)) / (495.052 / (495.052 + 353.377))
=0.49273893 / 0.58349255
=0.8445

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)
=(454.189 / 6829.118) / (417.084 / 4798.333)
=0.06650771 / 0.08692269
=0.7651

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)
=((2180.009 + 1834.134) / 7758.362) / ((1496.243 + 1012.63) / 4523.516)
=0.51739568 / 0.55462897
=0.9329

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
=(18.1 - -11.203 - 362.495) / 7758.362
=-0.0429

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.

ARRIS International PLC has a M-score of -1.68 signals that the company is likely to 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.

ARRIS International PLC Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.30110.82790.93120.89271.20920.99491.22830.65721.20811.4652
GMI 1.02430.80370.82221.07121.03421.10341.20980.95011.00541.1826
AQI 2.62390.76430.88470.97151.03120.94971.6940.91440.97661.1447
SGI 1.11291.15360.96790.98171.00111.24342.67491.47010.90141.4232
DEPI 1.49640.34681.03830.98731.05360.93771.32010.84640.93930.8445
SGAI 1.02921.24981.06480.94521.07920.87230.78380.82571.12690.7651
LVGI 0.74911.00350.91210.86971.14650.97612.44460.87650.98170.9329
TATA 0.0051-0.2366-0.1032-0.0387-0.096-0.0231-0.1384-0.0208-0.0478-0.0429
M-score -1.28-3.93-3.17-2.70-2.76-2.32-1.43-2.48-2.63-1.68

ARRIS International PLC Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.58940.65720.9571.01870.9761.20811.21241.2171.37061.4652
GMI 0.94510.95010.94860.99861.02671.00541.0491.08081.09971.1826
AQI 0.96120.91440.91160.95160.94930.97661.30581.21321.20781.1447
SGI 1.90131.47011.18271.04530.94320.90140.97831.10181.24431.4232
DEPI 0.66940.84640.93480.96430.95560.93931.00230.92310.87290.8445
SGAI 0.82440.82570.87640.92231.00851.12691.08410.97150.88640.7651
LVGI 0.90540.87650.910.91030.93030.98170.89260.9180.91640.9329
TATA -0.0823-0.0208-0.00360.0212-0.0123-0.0478-0.0374-0.0516-0.0578-0.0429
M-score -2.46-2.48-2.39-2.30-2.60-2.63-2.31-2.28-2.02-1.68
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