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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 -0.12. The lowest was -5.98. 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 * 0.9686||+||0.528 * 0.9799||+||0.404 * 0.8659||+||0.892 * 0.9486||+||0.115 * 0.9328|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0367||+||4.679 * -0.2337||-||0.327 * 1.1031|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|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 $910 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 $606 Mil.
Net Income was -22.492 + -1.952 + -21.838 + -26.47 = $-73 Mil.
Non Operating Income was -0.021 + -0.013 + 0.039 + -0.01 = $-0 Mil.
Cash Flow from Operations was 38.657 + 62.063 + 17.969 + 21.306 = $140 Mil.
|Accounts Receivable was $101 Mil.
Revenue was 301.839 + 308.578 + 313.401 + 316.788 = $1,241 Mil.
Gross Profit was 151.661 + 163.818 + 160.463 + 163.922 = $640 Mil.
Total Current Assets was $248 Mil.
Total Assets was $1,007 Mil.
Property, Plant and Equipment(Net PPE) was $438 Mil.
Depreciation, Depletion and Amortization(DDA) was $183 Mil.
Selling, General & Admin. Expense(SGA) was $426 Mil.
Total Current Liabilities was $208 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)|
|=||(92.616 / 1176.895)||/||(100.792 / 1240.606)|
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)|
|=||(162.05 / 1240.606)||/||(152.795 / 1176.895)|
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 - (254.181 + 404.713) / 910.161)||/||(1 - (247.852 + 438.321) / 1007.318)|
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))|
|=||(183.114 / (183.114 + 438.321))||/||(186.872 / (186.872 + 404.713))|
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)|
|=||(419.019 / 1176.895)||/||(426.07 / 1240.606)|
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)|
|=||((606.284 + 205.332) / 910.161)||/||((606.442 + 207.884) / 1007.318)|
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|
|=||(-72.752 - -0.005||-||139.995)||/||910.161|
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 -3.76 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