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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 1.06. The lowest was -5.98. 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 * 0.8364||+||0.528 * 0.9505||+||0.404 * 0.9043||+||0.892 * 0.9391||+||0.115 * 0.9267|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9634||+||4.679 * -0.2699||-||0.327 * 1.0614|
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $83 Mil.|
Revenue was 270.904 + 283.664 + 282.447 + 284.472 = $1,121 Mil.
Gross Profit was 148.513 + 156.616 + 152.985 + 152.795 = $611 Mil.
Total Current Assets was $199 Mil.
Total Assets was $768 Mil.
Property, Plant and Equipment(Net PPE) was $373 Mil.
Depreciation, Depletion and Amortization(DDA) was $189 Mil.
Selling, General & Admin. Expense(SGA) was $382 Mil.
Total Current Liabilities was $198 Mil.
Long-Term Debt was $507 Mil.
Net Income was -10.523 + -9.922 + -10.483 + -22.492 = $-53 Mil.
Non Operating Income was -2.516 + -6.77 + -1.432 + -0.146 = $-11 Mil.
Cash Flow from Operations was 73.962 + 33.262 + 18.865 + 38.657 = $165 Mil.
|Accounts Receivable was $106 Mil.
Revenue was 297.745 + 297.358 + 297.32 + 301.839 = $1,194 Mil.
Gross Profit was 162.05 + 153.17 + 151.444 + 151.661 = $618 Mil.
Total Current Assets was $268 Mil.
Total Assets was $951 Mil.
Property, Plant and Equipment(Net PPE) was $415 Mil.
Depreciation, Depletion and Amortization(DDA) was $188 Mil.
Selling, General & Admin. Expense(SGA) was $423 Mil.
Total Current Liabilities was $216 Mil.
Long-Term Debt was $606 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)|
|=||(82.864 / 1121.487)||/||(105.501 / 1194.262)|
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)|
|=||(156.616 / 1194.262)||/||(148.513 / 1121.487)|
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 - (199.006 + 372.948) / 768.026)||/||(1 - (267.814 + 414.802) / 951.115)|
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))|
|=||(187.986 / (187.986 + 414.802))||/||(189.175 / (189.175 + 372.948))|
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)|
|=||(382.371 / 1121.487)||/||(422.631 / 1194.262)|
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)|
|=||((507.335 + 197.861) / 768.026)||/||((606.382 + 216.417) / 951.115)|
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|
|=||(-53.42 - -10.864||-||164.746)||/||768.026|
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 -4.03 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