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GuruFocus has detected 3 Warning Signs with Cliffs Natural Resources Inc $CLF.
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Cliffs Natural Resources Inc (NYSE:CLF)
Beneish M-Score
-1.26 (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.

Cliffs Natural Resources Inc has a M-score of -1.26 signals that the company is a manipulator.

CLF' s Beneish M-Score Range Over the Past 10 Years
Min: -12.87   Max: 1.08
Current: -1.26

-12.87
1.08

During the past 13 years, the highest Beneish M-Score of Cliffs Natural Resources Inc was 1.08. The lowest was -12.87. And the median was -2.73.


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 Cliffs Natural Resources 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 * 3.0562+0.528 * 0.6364+0.404 * 1.3597+0.892 * 1.0475+0.115 * 1.0705
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0214+4.679 * -0.1536-0.327 * 0.8681
=-1.26

* 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 $129 Mil.
Revenue was 754 + 553.3 + 496.2 + 305.5 = $2,109 Mil.
Gross Profit was 181.5 + 85.4 + 91.5 + 30.9 = $389 Mil.
Total Current Assets was $825 Mil.
Total Assets was $1,924 Mil.
Property, Plant and Equipment(Net PPE) was $984 Mil.
Depreciation, Depletion and Amortization(DDA) was $115 Mil.
Selling, General & Admin. Expense(SGA) was $118 Mil.
Total Current Liabilities was $391 Mil.
Long-Term Debt was $2,175 Mil.
Net Income was 79.1 + -25.8 + 12.8 + 108 = $174 Mil.
Non Operating Income was 2.2 + -18.2 + 3.8 + 178.9 = $167 Mil.
Cash Flow from Operations was 230.9 + 91.4 + 107.2 + -126.5 = $303 Mil.
Accounts Receivable was $40 Mil.
Revenue was 476 + 593.2 + 498.1 + 446 = $2,013 Mil.
Gross Profit was 43.3 + 55.1 + 57.3 + 80.8 = $237 Mil.
Total Current Assets was $983 Mil.
Total Assets was $2,136 Mil.
Property, Plant and Equipment(Net PPE) was $1,059 Mil.
Depreciation, Depletion and Amortization(DDA) was $134 Mil.
Selling, General & Admin. Expense(SGA) was $110 Mil.
Total Current Liabilities was $582 Mil.
Long-Term Debt was $2,699 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)
=(128.7 / 2109) / (40.2 / 2013.3)
=0.06102418 / 0.01996722
=3.0562

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)
=(236.5 / 2013.3) / (389.3 / 2109)
=0.11746883 / 0.18458985
=0.6364

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 - (824.6 + 984.4) / 1923.9) / (1 - (982.7 + 1059) / 2135.5)
=0.05972244 / 0.04392414
=1.3597

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
=2109 / 2013.3
=1.0475

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))
=(134 / (134 + 1059)) / (115.4 / (115.4 + 984.4))
=0.11232188 / 0.10492817
=1.0705

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)
=(117.8 / 2109) / (110.1 / 2013.3)
=0.05585586 / 0.05468634
=1.0214

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)
=((2175.1 + 391.1) / 1923.9) / ((2699.4 + 581.7) / 2135.5)
=1.33385311 / 1.53645516
=0.8681

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
=(174.1 - 166.7 - 303) / 1923.9
=-0.1536

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.

Cliffs Natural Resources Inc has a M-score of -1.26 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.

Cliffs Natural Resources Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 2.53390.50862.32841.81220.54771.27731.23870.52420.54893.0562
GMI 1.06090.63192.43620.40540.81791.9930.52311.4532.23520.6364
AQI 1.15091.19350.98910.81860.97990.34530.58896.64860.21221.3597
SGI 1.1841.58630.64891.91451.46390.89470.66250.8670.59691.0475
DEPI 1.54990.73350.9051.11611.9010.87950.88730.15782.84991.0705
SGAI 1.50711.04110.98620.7430.98781.27160.87521.08941.19131.0223
LVGI 1.41231.31420.73291.34081.03861.07490.79553.83741.27890.8681
TATA -0.0067-0.0312-0.0149-0.0505-0.0529-0.1043-0.0556-2.418-0.5514-0.1536
M-score -1.00-2.81-0.81-1.59-2.74-2.63-3.16-12.87-5.41-1.26

Cliffs Natural Resources Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.58120.52420.70070.22050.25750.54890.82291.97371.2923.0562
GMI 0.31281.4531.76092.33933.49742.23522.43261.86531.27570.6364
AQI 1.2626.64861.43971.73621.2480.21220.92640.73960.74541.3597
SGI 0.36030.8670.95181.12541.24760.59690.58460.63330.71311.0475
DEPI 0.31550.15780.18530.24781.09542.84992.30791.75691.26821.0705
SGAI 1.38761.06750.98530.81740.68511.21681.30361.19611.45131.0214
LVGI 2.65933.83744.29674.22731.7391.27891.12971.10810.95180.8681
TATA -1.3447-2.418-3.1323-3.2323-1.1342-0.5514-0.1471-0.2474-0.169-0.1536
M-score -9.75-12.87-18.04-18.32-7.01-5.42-2.92-2.70-3.25-1.26
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