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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 -3.00.
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 * 0.9523||+||0.528 * 1.0041||+||0.404 * 0.8354||+||0.892 * 0.8933||+||0.115 * 1.0015|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9504||+||4.679 * -0.2714||-||0.327 * 1.006|
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $73 Mil.|
Revenue was 240.357 + 254.262 + 260.237 + 270.904 = $1,026 Mil.
Gross Profit was 129.423 + 139.056 + 138.51 + 148.513 = $556 Mil.
Total Current Assets was $176 Mil.
Total Assets was $663 Mil.
Property, Plant and Equipment(Net PPE) was $338 Mil.
Depreciation, Depletion and Amortization(DDA) was $167 Mil.
Selling, General & Admin. Expense(SGA) was $337 Mil.
Total Current Liabilities was $166 Mil.
Long-Term Debt was $437 Mil.
Net Income was 4.115 + 7.867 + -12.282 + -10.523 = $-11 Mil.
Non Operating Income was -0.226 + 5.495 + -0.009 + -2.516 = $3 Mil.
Cash Flow from Operations was 40.308 + 10.63 + 41.359 + 73.962 = $166 Mil.
|Accounts Receivable was $86 Mil.
Revenue was 283.664 + 282.447 + 284.472 + 297.745 = $1,148 Mil.
Gross Profit was 156.616 + 152.985 + 152.795 + 162.05 = $624 Mil.
Total Current Assets was $203 Mil.
Total Assets was $799 Mil.
Property, Plant and Equipment(Net PPE) was $382 Mil.
Depreciation, Depletion and Amortization(DDA) was $189 Mil.
Selling, General & Admin. Expense(SGA) was $398 Mil.
Total Current Liabilities was $157 Mil.
Long-Term Debt was $567 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)|
|=||(72.75 / 1025.76)||/||(85.524 / 1148.328)|
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)|
|=||(624.446 / 1148.328)||/||(555.502 / 1025.76)|
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 - (176.206 + 338.009) / 662.515)||/||(1 - (202.711 + 382.256) / 799.065)|
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))|
|=||(189.389 / (189.389 + 382.256))||/||(167.098 / (167.098 + 338.009))|
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)|
|=||(337.493 / 1025.76)||/||(397.544 / 1148.328)|
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)|
|=||((437.492 + 166.477) / 662.515)||/||((566.961 + 157.14) / 799.065)|
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|
|=||(-10.823 - 2.744||-||166.259)||/||662.515|
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 -3.95 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