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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 -2.89.
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 * 0.8654||+||0.528 * 0.968||+||0.404 * 0.8772||+||0.892 * 0.9323||+||0.115 * 0.9407|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9439||+||4.679 * -0.2721||-||0.327 * 1.0495|
|This Year (Dec15) TTM:||Last Year (Dec14) TTM:|
|Accounts Receivable was $75 Mil.|
Revenue was 260.237 + 270.904 + 283.664 + 282.447 = $1,097 Mil.
Gross Profit was 138.51 + 148.513 + 156.616 + 152.985 = $597 Mil.
Total Current Assets was $190 Mil.
Total Assets was $735 Mil.
Property, Plant and Equipment(Net PPE) was $373 Mil.
Depreciation, Depletion and Amortization(DDA) was $188 Mil.
Selling, General & Admin. Expense(SGA) was $369 Mil.
Total Current Liabilities was $180 Mil.
Long-Term Debt was $506 Mil.
Net Income was -12.282 + -10.523 + -9.922 + -10.483 = $-43 Mil.
Non Operating Income was -0.009 + -2.516 + -6.77 + -1.432 = $-11 Mil.
Cash Flow from Operations was 41.359 + 73.962 + 33.262 + 18.865 = $167 Mil.
|Accounts Receivable was $93 Mil.
Revenue was 284.472 + 297.745 + 297.358 + 297.32 = $1,177 Mil.
Gross Profit was 152.795 + 162.05 + 153.17 + 151.444 = $619 Mil.
Total Current Assets was $254 Mil.
Total Assets was $899 Mil.
Property, Plant and Equipment(Net PPE) was $405 Mil.
Depreciation, Depletion and Amortization(DDA) was $187 Mil.
Selling, General & Admin. Expense(SGA) was $419 Mil.
Total Current Liabilities was $205 Mil.
Long-Term Debt was $595 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)|
|=||(74.724 / 1097.252)||/||(92.616 / 1176.895)|
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)|
|=||(148.513 / 1176.895)||/||(138.51 / 1097.252)|
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 - (189.931 + 372.504) / 734.652)||/||(1 - (254.181 + 404.713) / 899.196)|
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))|
|=||(186.872 / (186.872 + 404.713))||/||(188.315 / (188.315 + 372.504))|
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)|
|=||(368.763 / 1097.252)||/||(419.019 / 1176.895)|
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)|
|=||((505.613 + 180.295) / 734.652)||/||((595.319 + 204.581) / 899.196)|
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|
|=||(-43.21 - -10.727||-||167.448)||/||734.652|
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 -4.02 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