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Avago Technologies Ltd (NAS:AVGO)
Beneish M-Score
-3.12 (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.

Avago Technologies Ltd has a M-score of -3.12 suggests that the company is not a manipulator.

AVGO' s 10-Year Beneish M-Score Range
Min: -3.12   Max: -2.46
Current: -3.12

-3.12
-2.46

During the past 8 years, the highest Beneish M-Score of Avago Technologies Ltd was -2.46. The lowest was -3.12. And the median was -2.61.


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 Avago Technologies 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 * 1.1043+0.528 * 1.0812+0.404 * 1.9159+0.892 * 1.694+0.115 * 0.6291
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0822+4.679 * -0.0883-0.327 * 4.9841
=-3.12

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

This Year (Oct14) TTM:Last Year (Oct13) TTM:
Accounts Receivable was $782 Mil.
Revenue was 1590 + 1269 + 701 + 709 = $4,269 Mil.
Gross Profit was 788 + 393 + 357 + 339 = $1,877 Mil.
Total Current Assets was $3,824 Mil.
Total Assets was $10,491 Mil.
Property, Plant and Equipment(Net PPE) was $1,158 Mil.
Depreciation, Depletion and Amortization(DDA) was $625 Mil.
Selling, General & Admin. Expense(SGA) was $407 Mil.
Total Current Liabilities was $1,029 Mil.
Long-Term Debt was $5,463 Mil.
Net Income was 135 + -164 + 158 + 134 = $263 Mil.
Non Operating Income was 16 + -2 + 0 + 0 = $14 Mil.
Cash Flow from Operations was 381 + 314 + 251 + 229 = $1,175 Mil.
Accounts Receivable was $418 Mil.
Revenue was 738 + 644 + 562 + 576 = $2,520 Mil.
Gross Profit was 346 + 304 + 272 + 276 = $1,198 Mil.
Total Current Assets was $1,818 Mil.
Total Assets was $3,415 Mil.
Property, Plant and Equipment(Net PPE) was $661 Mil.
Depreciation, Depletion and Amortization(DDA) was $187 Mil.
Selling, General & Admin. Expense(SGA) was $222 Mil.
Total Current Liabilities was $423 Mil.
Long-Term Debt was $1 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)
=(782 / 4269) / (418 / 2520)
=0.18318107 / 0.16587302
=1.1043

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)
=(393 / 2520) / (788 / 4269)
=0.47539683 / 0.43968142
=1.0812

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 - (3824 + 1158) / 10491) / (1 - (1818 + 661) / 3415)
=0.52511677 / 0.27408492
=1.9159

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
=4269 / 2520
=1.694

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))
=(187 / (187 + 661)) / (625 / (625 + 1158))
=0.22051887 / 0.35053281
=0.6291

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)
=(407 / 4269) / (222 / 2520)
=0.09533849 / 0.08809524
=1.0822

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)
=((5463 + 1029) / 10491) / ((1 + 423) / 3415)
=0.61881613 / 0.12415813
=4.9841

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
=(263 - 14 - 1175) / 10491
=-0.0883

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.

Avago Technologies Ltd has a M-score of -3.12 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 own currency.

Avago Technologies Ltd Annual Data

Oct07Oct08Oct09Oct10Oct11Oct12Oct13Oct14
DSRI 1.03121.02731.14991.1043
GMI 0.941.01641.01621.0812
AQI 0.82370.77461.17431.9159
SGI 1.11611.0121.0661.694
DEPI 1.08871.40911.06820.6291
SGAI 1.00570.89381.04651.0822
LVGI 0.54860.84021.02114.9841
TATA -0.063-0.0468-0.0539-0.0883
M-score -2.59-2.63-2.46-3.12

Avago Technologies Ltd Quarterly Data

Jul12Oct12Jan13Apr13Jul13Oct13Jan14Apr14Jul14Oct14
DSRI 1.11681.02730.85350.99071.09181.14991.0880.99581.13531.1043
GMI 1.01151.01641.01021.00441.00961.01621.01611.00291.1421.0812
AQI 0.76220.77460.76510.80891.17341.17431.19051.13641.80271.9159
SGI 1.03681.0121.01190.99831.01311.0661.11611.1821.42381.694
DEPI 1.37171.40911.30581.22451.18451.06821.00980.96650.71680.6291
SGAI 0.91540.89380.90740.94141.0161.04651.07781.07521.12511.0822
LVGI 0.91430.84020.74380.79450.93851.02111.08971.03735.23414.9841
TATA -0.0431-0.0468-0.0633-0.0599-0.0618-0.0539-0.0625-0.0629-0.0686-0.0883
M-score -2.55-2.63-2.85-2.74-2.56-2.46-2.54-2.59-3.34-3.12
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