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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 EarthLink Holdings Corp was 1.09. The lowest was -5.97. And the median was -2.97.
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 EarthLink Holdings Corp 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 * 0.9233||+||0.528 * 0.9805||+||0.404 * 0.8508||+||0.892 * 0.92||+||0.115 * 0.9446|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.946||+||4.679 * -0.272||-||0.327 * 1.0156|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $77 Mil.|
Revenue was 254.262 + 260.237 + 270.904 + 283.664 = $1,069 Mil.
Gross Profit was 139.056 + 138.51 + 148.513 + 156.616 = $583 Mil.
Total Current Assets was $161 Mil.
Total Assets was $663 Mil.
Property, Plant and Equipment(Net PPE) was $348 Mil.
Depreciation, Depletion and Amortization(DDA) was $181 Mil.
Selling, General & Admin. Expense(SGA) was $355 Mil.
Total Current Liabilities was $138 Mil.
Long-Term Debt was $469 Mil.
Net Income was 7.867 + -12.282 + -10.523 + -9.922 = $-25 Mil.
Non Operating Income was 5.495 + -0.009 + -2.516 + -6.77 = $-4 Mil.
Cash Flow from Operations was 10.63 + 41.359 + 73.962 + 33.262 = $159 Mil.
|Accounts Receivable was $91 Mil.
Revenue was 282.447 + 284.472 + 297.745 + 297.358 = $1,162 Mil.
Gross Profit was 152.985 + 152.795 + 162.05 + 153.17 = $621 Mil.
Total Current Assets was $231 Mil.
Total Assets was $856 Mil.
Property, Plant and Equipment(Net PPE) was $392 Mil.
Depreciation, Depletion and Amortization(DDA) was $187 Mil.
Selling, General & Admin. Expense(SGA) was $408 Mil.
Total Current Liabilities was $191 Mil.
Long-Term Debt was $581 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)|
|=||(77.249 / 1069.067)||/||(90.942 / 1162.022)|
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)|
|=||(138.51 / 1162.022)||/||(139.056 / 1069.067)|
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 - (160.744 + 348.171) / 662.83)||/||(1 - (230.61 + 391.84) / 856.118)|
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))|
|=||(187.281 / (187.281 + 391.84))||/||(181.25 / (181.25 + 348.171))|
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)|
|=||(354.917 / 1069.067)||/||(407.793 / 1162.022)|
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)|
|=||((469.003 + 137.581) / 662.83)||/||((580.592 + 190.862) / 856.118)|
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|
|=||(-24.86 - -3.8||-||159.213)||/||662.83|
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.
EarthLink Holdings Corp has a M-score of -3.97 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
EarthLink Holdings Corp Annual Data
EarthLink Holdings Corp Quarterly Data