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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 -2.76.
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 * 1.0084||+||0.528 * 0.9996||+||0.404 * 1.0598||+||0.892 * 0.922||+||0.115 * 0.8911|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0985||+||4.679 * -0.0972||-||0.327 * 0.9336|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $97 Mil.|
Revenue was 1162.3 + 1105.4 + 1133.587 + 1256.164 = $4,657 Mil.
Gross Profit was 933 + 890 + 914.014 + 1001.223 = $3,738 Mil.
Total Current Assets was $1,461 Mil.
Total Assets was $2,415 Mil.
Property, Plant and Equipment(Net PPE) was $347 Mil.
Depreciation, Depletion and Amortization(DDA) was $96 Mil.
Selling, General & Admin. Expense(SGA) was $2,248 Mil.
Total Current Liabilities was $1,098 Mil.
Long-Term Debt was $1,390 Mil.
Net Income was 82.8 + 78.2 + 103.292 + 11.248 = $276 Mil.
Non Operating Income was 0 + -2.3 + -0.008 + -9.831 = $-12 Mil.
Cash Flow from Operations was 197.6 + 161.1 + 61.903 + 101.897 = $523 Mil.
|Accounts Receivable was $104 Mil.
Revenue was 1306.2 + 1262.6 + 1268.871 + 1213.543 = $5,051 Mil.
Gross Profit was 1049 + 1011.4 + 1017.087 + 975.128 = $4,053 Mil.
Total Current Assets was $1,495 Mil.
Total Assets was $2,436 Mil.
Property, Plant and Equipment(Net PPE) was $363 Mil.
Depreciation, Depletion and Amortization(DDA) was $87 Mil.
Selling, General & Admin. Expense(SGA) was $2,219 Mil.
Total Current Liabilities was $942 Mil.
Long-Term Debt was $1,744 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)|
|=||(96.5 / 4657.451)||/||(103.782 / 5051.214)|
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)|
|=||(890 / 5051.214)||/||(933 / 4657.451)|
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 - (1460.7 + 347.3) / 2415.1)||/||(1 - (1494.789 + 363.165) / 2435.684)|
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))|
|=||(87.19 / (87.19 + 363.165))||/||(96.4 / (96.4 + 347.3))|
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)|
|=||(2247.721 / 4657.451)||/||(2219.073 / 5051.214)|
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)|
|=||((1389.5 + 1097.5) / 2415.1)||/||((1744.236 + 942.366) / 2435.684)|
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|
|=||(275.54 - -12.139||-||522.5)||/||2415.1|
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 -2.98 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