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GuruFocus has detected 6 Warning Signs with Frontline Ltd $FRO.
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Frontline Ltd (NYSE:FRO)
Beneish M-Score
1.61 (As of Today)

Warning Sign:

Beneish M-Score 1.61 higher than -2.22, which implies that it might have manipulated its financial results.

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.

Frontline Ltd has a M-score of 2.09 signals that the company is a manipulator.

FRO' s Beneish M-Score Range Over the Past 10 Years
Min: -4.31   Max: 23.67
Current: 1.61

-4.31
23.67

During the past 13 years, the highest Beneish M-Score of Frontline Ltd was 23.67. The lowest was -4.31. And the median was -2.53.


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 Frontline Ltd 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+0.528 * 1.496+0.404 * 0.9099+0.892 * 5.9767+0.115 * -0.4701
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * -0.2872+4.679 * -0.0524-0.327 * 0.7104
=2.09

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

This Year (Sep16) TTM:Last Year (Sep15) TTM:
Accounts Receivable was USD 0.0 Mil.
Revenue was 157.157 + 191.756 + 227.103 + 154.023 = USD 730.0 Mil.
Gross Profit was 74.286 + 109.434 + 148.068 + 92.658 = USD 424.4 Mil.
Total Current Assets was USD 287.1 Mil.
Total Assets was USD 2,922.9 Mil.
Property, Plant and Equipment(Net PPE) was USD 2,349.6 Mil.
Depreciation, Depletion and Amortization(DDA) was USD 132.2 Mil.
Selling, General & Admin. Expense(SGA) was USD 33.5 Mil.
Total Current Liabilities was USD 193.8 Mil.
Long-Term Debt was USD 1,328.5 Mil.
Net Income was 5.471 + 14.312 + 78.906 + 58.558 = USD 157.2 Mil.
Non Operating Income was 0.491 + -9.945 + -9.889 + -9.706 = USD -29.0 Mil.
Cash Flow from Operations was 48.531 + 82.346 + 121.468 + 87.048 = USD 339.4 Mil.
Accounts Receivable was USD 0.0 Mil.
Revenue was 107.456 + 103.937 + 93.518 + -182.763 = USD 122.1 Mil.
Gross Profit was 49.083 + 51.005 + 48.738 + -42.586 = USD 106.2 Mil.
Total Current Assets was USD 217.3 Mil.
Total Assets was USD 851.2 Mil.
Property, Plant and Equipment(Net PPE) was USD 542.3 Mil.
Depreciation, Depletion and Amortization(DDA) was USD -13.2 Mil.
Selling, General & Admin. Expense(SGA) was USD -19.5 Mil.
Total Current Liabilities was USD 159.7 Mil.
Long-Term Debt was USD 464.3 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)
=(0 / 730.039) / (0 / 122.148)
=0 / 0
=1

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)
=(106.24 / 122.148) / (424.446 / 730.039)
=0.86976455 / 0.58140182
=1.496

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 - (287.133 + 2349.563) / 2922.859) / (1 - (217.322 + 542.25) / 851.154)
=0.09790517 / 0.10759745
=0.9099

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
=730.039 / 122.148
=5.9767

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))
=(-13.244 / (-13.244 + 542.25)) / (132.154 / (132.154 + 2349.563))
=-0.02503563 / 0.05325104
=-0.4701

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)
=(33.546 / 730.039) / (-19.546 / 122.148)
=0.04595097 / -0.16001899
=-0.2872

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)
=((1328.481 + 193.753) / 2922.859) / ((464.336 + 159.695) / 851.154)
=0.52080309 / 0.73315875
=0.7104

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
=(157.247 - -29.049 - 339.393) / 2922.859
=-0.0524

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.

Frontline Ltd has a M-score of 2.09 signals that the company is likely to 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.

Frontline Ltd Annual Data

Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15
DSRI 0.78851.09510.63941.48871.20961.31570.64452.15550.62372.2687
GMI 1.08151.07850.89361.37390.98471.65471.08510.94310.76470.6956
AQI 3.68521.7870.57070.50181.27041.33041.231.43214.93170.2394
SGI 1.04170.911.5840.49691.04390.62090.79940.23151.8061.8978
DEPI 0.96750.77731.09350.89671.19470.49761.49923.55070.86391.1486
SGAI 1.46591.24486.35210.34970.93970.92551.18190.49060.71071.1281
LVGI 1.00131.1970.93680.96911.00661.1021.04281.0440.29671.7529
TATA -0.0711-0.0293-0.0302-0.0645-0.0385-0.3233-0.09210.02260.0267-0.0134
M-score -1.93-2.38-3.55-2.67-2.30-3.64-3.27-1.49-0.25-1.29

Frontline Ltd Quarterly Data

Jun14Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16
DSRI 110.62371112.268710.39591
GMI 0.31720.33130.76471.03120.7710.65520.69560.74661.11391.496
AQI 1.26921.74554.93171.4481.0870.79130.23940.78291.4920.9099
SGI 0.34290.35121.8060.92890.85530.66071.89783.58354.52625.9767
DEPI 4.37542.7250.86390.89222.5806-1.36471.14860.73910.1704-0.4701
SGAI 0.65590.92370.7107-0.6792-1.8212-2.81531.1281-1.976-0.5054-0.2872
LVGI 1.04891.08470.29671.00540.60370.65691.75290.50760.8180.7104
TATA 0.009-0.02510.01410.03310.11690.2494-0.0134-0.0112-0.0259-0.0524
M-score -2.84-3.04-0.31-1.92-1.35-1.39-1.290.190.472.09
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