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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 12 years, the highest Beneish M-Score of Herbalife Ltd was -2.10. The lowest was -3.44. And the median was -2.77.
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 * 1.011||+||0.528 * 0.9927||+||0.404 * 1.0192||+||0.892 * 0.8842||+||0.115 * 0.9028|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.5022||+||4.679 * -0.0805||-||0.327 * 0.8931|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $90 Mil.|
Revenue was 1102.9 + 1162.3 + 1105.4 + 1133.6 = $4,504 Mil.
Gross Profit was 896 + 933 + 890 + 914 = $3,633 Mil.
Total Current Assets was $1,492 Mil.
Total Assets was $2,422 Mil.
Property, Plant and Equipment(Net PPE) was $336 Mil.
Depreciation, Depletion and Amortization(DDA) was $97 Mil.
Selling, General & Admin. Expense(SGA) was $1,236 Mil.
Total Current Liabilities was $1,031 Mil.
Long-Term Debt was $1,399 Mil.
Net Income was 93.6 + 82.8 + 78.2 + 103.3 = $358 Mil.
Non Operating Income was 0 + 0 + -2.3 + 0 = $-2 Mil.
Cash Flow from Operations was 134.5 + 197.6 + 161.1 + 61.9 = $555 Mil.
|Accounts Receivable was $101 Mil.
Revenue was 1256.2 + 1306.2 + 1262.6 + 1268.871 = $5,094 Mil.
Gross Profit was 1001.2 + 1049 + 1011.4 + 1017.087 = $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 $2,783 Mil.
Total Current Liabilities was $928 Mil.
Long-Term Debt was $1,728 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)|
|=||(89.9 / 4504.2)||/||(100.56 / 5093.871)|
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)|
|=||(933 / 5093.871)||/||(896 / 4504.2)|
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 - (1492.1 + 335.8) / 2421.5)||/||(1 - (1436.832 + 358.983) / 2364.498)|
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))|
|=||(90.693 / (90.693 + 358.983))||/||(96.6 / (96.6 + 335.8))|
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)|
|=||(1235.9 / 4504.2)||/||(2782.926 / 5093.871)|
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)|
|=||((1398.7 + 1030.5) / 2421.5)||/||((1727.919 + 928.034) / 2364.498)|
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|
|=||(357.9 - -2.3||-||555.1)||/||2421.5|
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 -2.84 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