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GuruFocus has detected 1 Warning Sign with E*TRADE Financial Corp $ETFC.
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E*TRADE Financial Corp (NAS:ETFC)
Beneish M-Score
-2.39 (As of Today)

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.

E*TRADE Financial Corp has a M-score of -2.39 suggests that the company is not a manipulator.

ETFC' s Beneish M-Score Range Over the Past 10 Years
Min: -2.58   Max: 2.25
Current: -2.39

-2.58
2.25

During the past 13 years, the highest Beneish M-Score of E*TRADE Financial Corp was 2.25. The lowest was -2.58. And the median was -2.33.


Definition

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 E*TRADE Financial 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 * 0.6941+0.528 * 1+0.404 * 1.0003+0.892 * 1.4168+0.115 * 1.1586
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.7344+4.679 * -0.0219-0.327 * 0.8741
=-2.39

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $7,787 Mil.
Revenue was 509 + 486 + 474 + 472 = $1,941 Mil.
Gross Profit was 509 + 486 + 474 + 472 = $1,941 Mil.
Total Current Assets was $0 Mil.
Total Assets was $48,999 Mil.
Property, Plant and Equipment(Net PPE) was $239 Mil.
Depreciation, Depletion and Amortization(DDA) was $239 Mil.
Selling, General & Admin. Expense(SGA) was $849 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt was $1,403 Mil.
Net Income was 127 + 139 + 133 + 153 = $552 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 897 + 401 + 231 + 96 = $1,625 Mil.
Accounts Receivable was $7,918 Mil.
Revenue was 439 + 61 + 429 + 441 = $1,370 Mil.
Gross Profit was 439 + 61 + 429 + 441 = $1,370 Mil.
Total Current Assets was $0 Mil.
Total Assets was $45,427 Mil.
Property, Plant and Equipment(Net PPE) was $236 Mil.
Depreciation, Depletion and Amortization(DDA) was $325 Mil.
Selling, General & Admin. Expense(SGA) was $816 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt was $1,488 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(7787 / 1941) / (7918 / 1370)
=4.01184956 / 5.77956204
=0.6941

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(1370 / 1370) / (1941 / 1941)
=1 / 1
=1

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (0 + 239) / 48999) / (1 - (0 + 236) / 45427)
=0.99512235 / 0.99480485
=1.0003

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=1941 / 1370
=1.4168

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))
=(325 / (325 + 236)) / (239 / (239 + 239))
=0.57932264 / 0.5
=1.1586

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)
=(849 / 1941) / (816 / 1370)
=0.4374034 / 0.59562044
=0.7344

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)
=((1403 + 0) / 48999) / ((1488 + 0) / 45427)
=0.02863324 / 0.03275585
=0.8741

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(552 - 0 - 1625) / 48999
=-0.0219

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.

E*TRADE Financial Corp has a M-score of -2.39 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

E*TRADE Financial Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI
GMI
AQI
SGI
DEPI
SGAI
LVGI
TATA
M-score

E*TRADE Financial Corp Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.15661.27461.11511.10951.24451.18911.04181.09720.70690.6941
GMI 1111111111
AQI 1.00020.99970.99970.99990.99951.00021.00031.00041.0011.0003
SGI 1.1341.0571.00350.99940.78530.7780.81120.84171.36771.4168
DEPI 1.08981.08761.05210.99710.96040.99191.05631.15351.2121.1586
SGAI 0.88760.95591.02811.03851.33951.35171.30841.24190.75370.7344
LVGI 0.99812.1140.75580.73970.52130.23530.58790.57570.81770.8741
TATA -0.0063-0.009-0.0017-0.007-0.019-0.0124-0.0225-0.0111-0.0077-0.0219
M-score -2.22-2.57-2.30-2.33-2.44-2.37-2.63-2.47-2.33-2.39
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