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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 -2.50.
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 * 0.9947||+||0.528 * 0.9932||+||0.404 * 1.024||+||0.892 * 1.0382||+||0.115 * 0.9222|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0019||+||4.679 * -0.0241||-||0.327 * 0.9799|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $3,159 Mil.|
Revenue was 4620 + 5015 + 4709 + 5090 = $19,434 Mil.
Gross Profit was 1208 + 1332 + 1195 + 1273 = $5,008 Mil.
Total Current Assets was $8,862 Mil.
Total Assets was $15,797 Mil.
Property, Plant and Equipment(Net PPE) was $3,717 Mil.
Depreciation, Depletion and Amortization(DDA) was $508 Mil.
Selling, General & Admin. Expense(SGA) was $2,149 Mil.
Total Current Liabilities was $3,968 Mil.
Long-Term Debt was $1,595 Mil.
Net Income was 380 + 471 + 387 + 444 = $1,682 Mil.
Non Operating Income was 11 + -8 + 9 + 42 = $54 Mil.
Cash Flow from Operations was 562 + 396 + 173 + 878 = $2,009 Mil.
|Accounts Receivable was $3,059 Mil.
Revenue was 4890 + 4835 + 4406 + 4588 = $18,719 Mil.
Gross Profit was 1284 + 1227 + 1116 + 1164 = $4,791 Mil.
Total Current Assets was $9,068 Mil.
Total Assets was $15,644 Mil.
Property, Plant and Equipment(Net PPE) was $3,464 Mil.
Depreciation, Depletion and Amortization(DDA) was $432 Mil.
Selling, General & Admin. Expense(SGA) was $2,066 Mil.
Total Current Liabilities was $4,038 Mil.
Long-Term Debt was $1,584 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)|
|=||(3159 / 19434)||/||(3059 / 18719)|
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)|
|=||(1332 / 18719)||/||(1208 / 19434)|
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 - (8862 + 3717) / 15797)||/||(1 - (9068 + 3464) / 15644)|
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))|
|=||(432 / (432 + 3464))||/||(508 / (508 + 3717))|
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)|
|=||(2149 / 19434)||/||(2066 / 18719)|
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)|
|=||((1595 + 3968) / 15797)||/||((1584 + 4038) / 15644)|
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|
|=||(1682 - 54||-||2009)||/||15797|
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 -2.56 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