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GuruFocus has detected 7 Warning Signs with BHP Billiton Ltd $BHP.
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BHP Billiton Ltd (NYSE:BHP)
Beneish M-Score
-2.61 (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.

BHP Billiton Ltd has a M-score of -2.64 suggests that the company is not a manipulator.

BHP' s Beneish M-Score Range Over the Past 10 Years
Min: -6.52   Max: -1.53
Current: -2.61

-6.52
-1.53

During the past 13 years, the highest Beneish M-Score of BHP Billiton Ltd was -1.53. The lowest was -6.52. And the median was -2.68.


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 BHP Billiton 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 * 1.8023+0.528 * 0.9251+0.404 * 1.2788+0.892 * 0.6925+0.115 * 0.9489
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9534+4.679 * -0.1404-0.327 * 1.1316
=-2.64

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

This Year (Jun16) TTM:Last Year (Jun15) TTM:
Accounts Receivable was $3,722 Mil.
Revenue was $30,912 Mil.
Gross Profit was $22,261 Mil.
Total Current Assets was $17,714 Mil.
Total Assets was $118,953 Mil.
Property, Plant and Equipment(Net PPE) was $83,975 Mil.
Depreciation, Depletion and Amortization(DDA) was $8,661 Mil.
Selling, General & Admin. Expense(SGA) was $3,702 Mil.
Total Current Liabilities was $12,340 Mil.
Long-Term Debt was $31,768 Mil.
Net Income was $-6,385 Mil.
Non Operating Income was $-313 Mil.
Cash Flow from Operations was $10,625 Mil.
Accounts Receivable was $2,982 Mil.
Revenue was $44,636 Mil.
Gross Profit was $29,737 Mil.
Total Current Assets was $16,369 Mil.
Total Assets was $124,580 Mil.
Property, Plant and Equipment(Net PPE) was $94,072 Mil.
Depreciation, Depletion and Amortization(DDA) was $9,158 Mil.
Selling, General & Admin. Expense(SGA) was $5,607 Mil.
Total Current Liabilities was $12,853 Mil.
Long-Term Debt was $27,969 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)
=(3722 / 30912) / (2982 / 44636)
=0.12040631 / 0.06680706
=1.8023

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)
=(29737 / 44636) / (22261 / 30912)
=0.66621113 / 0.72014105
=0.9251

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 - (17714 + 83975) / 118953) / (1 - (16369 + 94072) / 124580)
=0.14513295 / 0.11349334
=1.2788

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
=30912 / 44636
=0.6925

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))
=(9158 / (9158 + 94072)) / (8661 / (8661 + 83975))
=0.08871452 / 0.09349497
=0.9489

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)
=(3702 / 30912) / (5607 / 44636)
=0.11975932 / 0.12561609
=0.9534

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)
=((31768 + 12340) / 118953) / ((27969 + 12853) / 124580)
=0.37080191 / 0.32767699
=1.1316

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
=(-6385 - -313 - 10625) / 118953
=-0.1404

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.

BHP Billiton Ltd has a M-score of -2.64 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.

BHP Billiton Ltd Annual Data

Jun07Jun08Jun09Jun10Jun11Jun12Jun13Jun14Jun15Jun16
DSRI 1.02551.10110.54851.26930.90310.77311.05660.99490.97181.8023
GMI 0.9630.9091.06480.92340.90831.07241.01880.94940.97870.9251
AQI 0.98850.5161.00020.99531.0281.11481.06161.20440.84531.2788
SGI 1.22841.50570.84431.05151.35871.00680.91341.01880.66420.6925
DEPI 1.10040.87270.9690.92771.14241.09530.99730.85350.83480.9489
SGAI 0.95580.89141.25640.98680.94821.19011.14950.69221.10180.9534
LVGI 0.98721.0071.01980.86831.04161.16081.0040.87891.02531.1316
TATA -0.0375-0.0364-0.1649-0.0585-0.0581-0.0662-0.0485-0.0718-0.1373-0.1404
M-score -2.43-2.35-3.83-2.47-2.55-2.98-2.72-2.67-3.57-2.64
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