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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 -2.34. The lowest was -3.06. And the median was -2.50.
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 * 1.1227||+||0.528 * 0.9938||+||0.404 * 0.966||+||0.892 * 1.111||+||0.115 * 1.0396|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.999||+||4.679 * -0.046||-||0.327 * 1.0392|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $2,946 Mil.|
Revenue was 5090 + 4890 + 4835 + 4406 = $19,221 Mil.
Gross Profit was 1273 + 1284 + 1227 + 1116 = $4,900 Mil.
Total Current Assets was $9,055 Mil.
Total Assets was $15,776 Mil.
Property, Plant and Equipment(Net PPE) was $3,686 Mil.
Depreciation, Depletion and Amortization(DDA) was $455 Mil.
Selling, General & Admin. Expense(SGA) was $2,131 Mil.
Total Current Liabilities was $4,021 Mil.
Long-Term Debt was $1,589 Mil.
Net Income was 444 + 423 + 446 + 338 = $1,651 Mil.
Non Operating Income was 42 + 19 + 39 + 10 = $110 Mil.
Cash Flow from Operations was 878 + 687 + 438 + 263 = $2,266 Mil.
|Accounts Receivable was $2,362 Mil.
Revenue was 4588 + 4266 + 4525 + 3922 = $17,301 Mil.
Gross Profit was 1164 + 1109 + 1153 + 957 = $4,383 Mil.
Total Current Assets was $8,639 Mil.
Total Assets was $14,728 Mil.
Property, Plant and Equipment(Net PPE) was $3,156 Mil.
Depreciation, Depletion and Amortization(DDA) was $407 Mil.
Selling, General & Admin. Expense(SGA) was $1,920 Mil.
Total Current Liabilities was $3,368 Mil.
Long-Term Debt was $1,672 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)|
|=||(2946 / 19221)||/||(2362 / 17301)|
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)|
|=||(1284 / 17301)||/||(1273 / 19221)|
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 - (9055 + 3686) / 15776)||/||(1 - (8639 + 3156) / 14728)|
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))|
|=||(407 / (407 + 3156))||/||(455 / (455 + 3686))|
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)|
|=||(2131 / 19221)||/||(1920 / 17301)|
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)|
|=||((1589 + 4021) / 15776)||/||((1672 + 3368) / 14728)|
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|
|=||(1651 - 110||-||2266)||/||15776|
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 -2.51 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