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GuruFocus has detected 4 Warning Signs with Baker Hughes Inc $BHI.
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Baker Hughes Inc (NYSE:BHI)
Beneish M-Score
-8.31 (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.

Baker Hughes Inc has a M-score of -8.31 suggests that the company is not a manipulator.

BHI' s Beneish M-Score Range Over the Past 10 Years
Min: -8.71   Max: -1.52
Current: -8.31

-8.71
-1.52

During the past 13 years, the highest Beneish M-Score of Baker Hughes Inc was -1.52. The lowest was -8.71. And the median was -2.57.


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 Baker Hughes 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 * 1.1193+0.528 * -6.2846+0.404 * 0.872+0.892 * 0.6251+0.115 * 0.963
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.3276+4.679 * -0.3535-0.327 * 0.9851
=-8.31

* 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 $2,251 Mil.
Revenue was 2410 + 2353 + 2408 + 2670 = $9,841 Mil.
Gross Profit was 266 + 294 + -704 + 12 = $-132 Mil.
Total Current Assets was $9,167 Mil.
Total Assets was $19,034 Mil.
Property, Plant and Equipment(Net PPE) was $4,271 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,166 Mil.
Selling, General & Admin. Expense(SGA) was $815 Mil.
Total Current Liabilities was $2,304 Mil.
Long-Term Debt was $2,886 Mil.
Net Income was -417 + -429 + -911 + -981 = $-2,738 Mil.
Non Operating Income was -97 + 0 + -142 + 0 = $-239 Mil.
Cash Flow from Operations was 632 + 119 + 3577 + -99 = $4,229 Mil.
Accounts Receivable was $3,217 Mil.
Revenue was 3394 + 3786 + 3968 + 4594 = $15,742 Mil.
Gross Profit was 280 + 411 + 384 + 252 = $1,327 Mil.
Total Current Assets was $9,268 Mil.
Total Assets was $24,080 Mil.
Property, Plant and Equipment(Net PPE) was $6,693 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,742 Mil.
Selling, General & Admin. Expense(SGA) was $982 Mil.
Total Current Liabilities was $2,775 Mil.
Long-Term Debt was $3,890 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)
=(2251 / 9841) / (3217 / 15742)
=0.22873692 / 0.20435777
=1.1193

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)
=(1327 / 15742) / (-132 / 9841)
=0.08429679 / -0.01341327
=-6.2846

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 - (9167 + 4271) / 19034) / (1 - (9268 + 6693) / 24080)
=0.29400021 / 0.33716777
=0.872

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
=9841 / 15742
=0.6251

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))
=(1742 / (1742 + 6693)) / (1166 / (1166 + 4271))
=0.20652045 / 0.2144565
=0.963

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)
=(815 / 9841) / (982 / 15742)
=0.08281679 / 0.06238089
=1.3276

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)
=((2886 + 2304) / 19034) / ((3890 + 2775) / 24080)
=0.27266996 / 0.27678571
=0.9851

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
=(-2738 - -239 - 4229) / 19034
=-0.3535

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.

Baker Hughes Inc has a M-score of -8.31 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.

Baker Hughes Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.00381.01771.03721.13380.89940.91641.01920.96060.9261.1193
GMI 1.15561.04241.40491.04680.9731.22831.10030.87072.3217-6.2846
AQI 0.93750.76091.13051.93170.88630.92240.95520.9891.25920.872
SGI 1.15521.13770.81461.49151.37581.07721.0471.09780.64120.6251
DEPI 1.06580.98280.99971.26750.95810.99090.96830.9450.80750.963
SGAI 0.61611.04411.24090.74830.6921.02670.94790.92981.13371.3454
LVGI 0.88051.32540.82210.98021.01551.00881.01530.97930.93320.9851
TATA 0.00390.0013-0.0719-0.00220.0109-0.0196-0.0739-0.0428-0.1563-0.3535
M-score -2.15-2.52-2.66-1.45-2.20-2.50-2.73-2.69-2.82-8.32

Baker Hughes Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.95180.96060.8260.7470.79550.9261.0651.07431.10011.1193
GMI 0.93860.87070.99161.19591.37462.32172.1967-1851.817-12.1202-6.2846
AQI 0.99910.9891.04791.09691.13481.25921.20150.94470.93820.872
SGI 1.08921.09781.0240.920.79840.64120.59020.57150.57020.6251
DEPI 0.96170.9450.90340.9050.89790.80750.85960.79760.84870.963
SGAI 0.93670.92980.97961.02141.06651.14891.17211.22331.33641.3276
LVGI 1.01680.97930.94170.89790.86710.93320.97540.95330.97960.9851
TATA -0.0507-0.0428-0.0781-0.1089-0.1077-0.1563-0.1657-0.3631-0.3765-0.3535
M-score -2.71-2.69-2.96-3.13-3.08-2.82-2.89-982.85-11.55-8.31
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