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GuruFocus has detected 3 Warning Signs with Eaton Corp PLC $ETN.
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Eaton Corp PLC (NYSE:ETN)
Beneish M-Score
-2.60 (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.

Eaton Corp PLC has a M-score of -2.60 suggests that the company is not a manipulator.

ETN' s Beneish M-Score Range Over the Past 10 Years
Min: -2.93   Max: -2.04
Current: -2.6

-2.93
-2.04

During the past 13 years, the highest Beneish M-Score of Eaton Corp PLC was -2.04. The lowest was -2.93. And the median was -2.56.


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 Eaton Corp PLC 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 * 1.0807+0.528 * 0.9791+0.404 * 0.9808+0.892 * 0.9469+0.115 * 0.9695
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0294+4.679 * -0.0242-0.327 * 1.0046
=-2.60

* 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 $3,560 Mil.
Revenue was 4867 + 4987 + 5080 + 4813 = $19,747 Mil.
Gross Profit was 1548 + 1616 + 1661 + 1522 = $6,347 Mil.
Total Current Assets was $6,941 Mil.
Total Assets was $30,419 Mil.
Property, Plant and Equipment(Net PPE) was $3,443 Mil.
Depreciation, Depletion and Amortization(DDA) was $929 Mil.
Selling, General & Admin. Expense(SGA) was $3,505 Mil.
Total Current Liabilities was $5,485 Mil.
Long-Term Debt was $6,711 Mil.
Net Income was 504 + 523 + 491 + 404 = $1,922 Mil.
Non Operating Income was 79 + 15 + -5 + 18 = $107 Mil.
Cash Flow from Operations was 638 + 798 + 745 + 371 = $2,552 Mil.
Accounts Receivable was $3,479 Mil.
Revenue was 5057 + 5203 + 5372 + 5223 = $20,855 Mil.
Gross Profit was 1630 + 1606 + 1697 + 1630 = $6,563 Mil.
Total Current Assets was $6,616 Mil.
Total Assets was $30,996 Mil.
Property, Plant and Equipment(Net PPE) was $3,565 Mil.
Depreciation, Depletion and Amortization(DDA) was $925 Mil.
Selling, General & Admin. Expense(SGA) was $3,596 Mil.
Total Current Liabilities was $4,625 Mil.
Long-Term Debt was $7,746 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)
=(3560 / 19747) / (3479 / 20855)
=0.18028055 / 0.16681851
=1.0807

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)
=(6563 / 20855) / (6347 / 19747)
=0.31469672 / 0.32141591
=0.9791

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 - (6941 + 3443) / 30419) / (1 - (6616 + 3565) / 30996)
=0.65863441 / 0.67153826
=0.9808

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
=19747 / 20855
=0.9469

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))
=(925 / (925 + 3565)) / (929 / (929 + 3443))
=0.20601336 / 0.21248856
=0.9695

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)
=(3505 / 19747) / (3596 / 20855)
=0.17749532 / 0.17242867
=1.0294

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)
=((6711 + 5485) / 30419) / ((7746 + 4625) / 30996)
=0.40093363 / 0.39911601
=1.0046

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
=(1922 - 107 - 2552) / 30419
=-0.0242

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.

Eaton Corp PLC has a M-score of -2.60 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.

Eaton Corp PLC Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.07480.8811.07161.02070.93281.39860.77690.98271.02591.0807
GMI 0.95811.02921.04550.87470.99761.00070.98440.9890.97310.9791
AQI 1.13581.17461.03310.93930.98361.27480.95891.00091.03860.9808
SGI 1.06551.17980.77221.15511.17021.01631.35161.0230.92480.9469
DEPI 0.95860.9410.93691.04341.03361.29070.66080.99391.00810.9695
SGAI 1.03530.99581.16050.95560.94121.040.99350.95841.02061.0294
LVGI 1.02250.91810.89061.0341.02191.0890.91671.02011.00021.0046
TATA -0.0133-0.0255-0.0635-0.02050.0036-0.0105-0.01220.0112-0.0138-0.0242
M-score -2.40-2.44-2.88-2.51-2.37-2.04-2.46-2.43-2.59-2.60

Eaton Corp PLC Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.93130.98270.95750.97970.971.02591.04551.02611.07241.0807
GMI 0.98460.9890.97840.96160.9750.97310.98110.98360.96550.9791
AQI 1.00041.00091.00031.01661.01161.03861.02861.02221.01180.9808
SGI 1.07971.0231.00250.97740.94890.92480.91750.92070.93320.9469
DEPI 0.92410.99390.99651.02681.03191.00811.01230.9820.98060.9695
SGAI 0.97820.95840.9650.96190.97781.02061.03491.05331.03871.0294
LVGI 0.9941.02011.0550.98041.01291.00020.96611.01270.99471.0046
TATA 0.00980.01120.01030.0079-0.0178-0.0138-0.0252-0.0315-0.0238-0.0242
M-score -2.44-2.43-2.49-2.48-2.64-2.59-2.62-2.69-2.60-2.60
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