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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 11 years, the highest Beneish M-Score of Herbalife Ltd was -2.10. The lowest was -3.44. And the median was -2.73.
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 Herbalife 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 * 0.8297||+||0.528 * 0.9992||+||0.404 * 1.1346||+||0.892 * 1.1036||+||0.115 * 1.1639|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9821||+||4.679 * -0.1283||-||0.327 * 1.5102|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $101 Mil.|
Revenue was 1256.164 + 1306.2 + 1262.649 + 1268.879 = $5,094 Mil.
Gross Profit was 1001.223 + 1048.979 + 1011.484 + 1017.072 = $4,079 Mil.
Total Current Assets was $1,437 Mil.
Total Assets was $2,364 Mil.
Property, Plant and Equipment(Net PPE) was $359 Mil.
Depreciation, Depletion and Amortization(DDA) was $91 Mil.
Selling, General & Admin. Expense(SGA) was $2,028 Mil.
Total Current Liabilities was $928 Mil.
Long-Term Debt was $1,728 Mil.
Net Income was 11.248 + 119.532 + 74.628 + 123.54 = $329 Mil.
Non Operating Income was -9.831 + -0.006 + -3.161 + 0 = $-13 Mil.
Cash Flow from Operations was 101.914 + 156.934 + 190.649 + 195.891 = $645 Mil.
|Accounts Receivable was $110 Mil.
Revenue was 1213.543 + 1219.239 + 1123.647 + 1059.32 = $4,616 Mil.
Gross Profit was 975.128 + 972.015 + 897.67 + 848.215 = $3,693 Mil.
Total Current Assets was $1,579 Mil.
Total Assets was $2,343 Mil.
Property, Plant and Equipment(Net PPE) was $268 Mil.
Depreciation, Depletion and Amortization(DDA) was $82 Mil.
Selling, General & Admin. Expense(SGA) was $1,871 Mil.
Total Current Liabilities was $868 Mil.
Long-Term Debt was $875 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)|
|=||(100.56 / 5093.892)||/||(109.83 / 4615.749)|
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)|
|=||(1048.979 / 4615.749)||/||(1001.223 / 5093.892)|
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 - (1436.832 + 358.983) / 2364.498)||/||(1 - (1578.833 + 267.85) / 2343.447)|
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))|
|=||(82.189 / (82.189 + 267.85))||/||(90.723 / (90.723 + 358.983))|
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)|
|=||(2028.179 / 5093.892)||/||(1871.367 / 4615.749)|
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)|
|=||((1727.919 + 928.034) / 2364.498)||/||((875.018 + 867.963) / 2343.447)|
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|
|=||(328.948 - -12.998||-||645.388)||/||2364.498|
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.
Herbalife Ltd has a M-score of -3.24 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
Herbalife Ltd Annual Data
Herbalife Ltd Quarterly Data