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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 * 1.0008||+||0.528 * 0.9856||+||0.404 * 0.9619||+||0.892 * 1.0978||+||0.115 * 0.9775|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0224||+||4.679 * -0.0372||-||0.327 * 1.0227|
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|Accounts Receivable was $3,240 Mil.|
Revenue was 4709 + 5090 + 4890 + 4835 = $19,524 Mil.
Gross Profit was 1195 + 1273 + 1284 + 1227 = $4,979 Mil.
Total Current Assets was $9,000 Mil.
Total Assets was $15,736 Mil.
Property, Plant and Equipment(Net PPE) was $3,637 Mil.
Depreciation, Depletion and Amortization(DDA) was $478 Mil.
Selling, General & Admin. Expense(SGA) was $2,146 Mil.
Total Current Liabilities was $4,057 Mil.
Long-Term Debt was $1,602 Mil.
Net Income was 387 + 444 + 423 + 446 = $1,700 Mil.
Non Operating Income was 9 + 42 + 19 + 39 = $109 Mil.
Cash Flow from Operations was 173 + 878 + 687 + 438 = $2,176 Mil.
|Accounts Receivable was $2,949 Mil.
Revenue was 4406 + 4588 + 4266 + 4525 = $17,785 Mil.
Gross Profit was 1099 + 1137 + 1081 + 1153 = $4,470 Mil.
Total Current Assets was $8,499 Mil.
Total Assets was $14,751 Mil.
Property, Plant and Equipment(Net PPE) was $3,232 Mil.
Depreciation, Depletion and Amortization(DDA) was $414 Mil.
Selling, General & Admin. Expense(SGA) was $1,912 Mil.
Total Current Liabilities was $3,555 Mil.
Long-Term Debt was $1,632 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)|
|=||(3240 / 19524)||/||(2949 / 17785)|
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)|
|=||(1273 / 17785)||/||(1195 / 19524)|
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 - (9000 + 3637) / 15736)||/||(1 - (8499 + 3232) / 14751)|
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))|
|=||(414 / (414 + 3232))||/||(478 / (478 + 3637))|
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)|
|=||(2146 / 19524)||/||(1912 / 17785)|
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)|
|=||((1602 + 4057) / 15736)||/||((1632 + 3555) / 14751)|
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|
|=||(1700 - 109||-||2176)||/||15736|
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 -2.60 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