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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.
During the past 13 years, the highest Beneish M-Score of Cummins Inc was -2.04. The lowest was -3.31. And the median was -2.48.
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 Cummins 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 * 0.9857||+||0.528 * 0.9685||+||0.404 * 1.0176||+||0.892 * 1.0889||+||0.115 * 0.9518|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0163||+||4.679 * -0.0297||-||0.327 * 1.0109|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $3,422 Mil.|
Revenue was 5015 + 4709 + 5090 + 4890 = $19,704 Mil.
Gross Profit was 1332 + 1195 + 1273 + 1284 = $5,084 Mil.
Total Current Assets was $9,003 Mil.
Total Assets was $15,878 Mil.
Property, Plant and Equipment(Net PPE) was $3,653 Mil.
Depreciation, Depletion and Amortization(DDA) was $492 Mil.
Selling, General & Admin. Expense(SGA) was $2,148 Mil.
Total Current Liabilities was $4,053 Mil.
Long-Term Debt was $1,576 Mil.
Net Income was 471 + 387 + 444 + 423 = $1,725 Mil.
Non Operating Income was -8 + 9 + 42 + 19 = $62 Mil.
Cash Flow from Operations was 396 + 173 + 878 + 687 = $2,134 Mil.
|Accounts Receivable was $3,188 Mil.
Revenue was 4835 + 4406 + 4588 + 4266 = $18,095 Mil.
Gross Profit was 1205 + 1099 + 1137 + 1081 = $4,522 Mil.
Total Current Assets was $9,080 Mil.
Total Assets was $15,500 Mil.
Property, Plant and Equipment(Net PPE) was $3,329 Mil.
Depreciation, Depletion and Amortization(DDA) was $424 Mil.
Selling, General & Admin. Expense(SGA) was $1,941 Mil.
Total Current Liabilities was $3,809 Mil.
Long-Term Debt was $1,627 Mil.
1. DSRI = Days Sales in Receivables Index
A large increase in DSR could be indicative of revenue inflation.
|DSRI||=||(Receivables_t / Revenue_t)||/||(Receivables_t-1 / Revenue_t-1)|
|=||(3422 / 19704)||/||(3188 / 18095)|
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.
|=||(GrossProfit_t-1 / Revenue_t-1)||/||(GrossProfit_t / Revenue_t)|
|=||(1195 / 18095)||/||(1332 / 19704)|
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
|AQI||=||(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t)||/||(1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)|
|=||(1 - (9003 + 3653) / 15878)||/||(1 - (9080 + 3329) / 15500)|
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.
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))|
|=||(424 / (424 + 3329))||/||(492 / (492 + 3653))|
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)|
|=||(2148 / 19704)||/||(1941 / 18095)|
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)|
|=||((1576 + 4053) / 15878)||/||((1627 + 3809) / 15500)|
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
|=||(NetIncome_t - NonOperatingIncome_t||-||CashFlowsfromOperations_t)||/||TotalAssets_t|
|=||(1725 - 62||-||2134)||/||15878|
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.
Cummins Inc has a M-score of -2.57 suggests that the company will not be a manipulator.
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
Cummins Inc Annual Data
Cummins Inc Quarterly Data