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GuruFocus has detected 3 Warning Signs with Herbalife Ltd $HLF.
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Herbalife Ltd (NYSE:HLF)
Beneish M-Score
-2.55 (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.

Herbalife Ltd has a M-score of -2.55 suggests that the company is not a manipulator.

HLF' s Beneish M-Score Range Over the Past 10 Years
Min: -3.23   Max: -2.28
Current: -2.55

-3.23
-2.28

During the past 13 years, the highest Beneish M-Score of Herbalife Ltd was -2.28. The lowest was -3.23. And the median was -2.69.


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 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 * 1.0014+0.528 * 0.9986+0.404 * 1.2232+0.892 * 1.0043+0.115 * 1.0861
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.097+4.679 * -0.0418-0.327 * 0.8912
=-2.55

* 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 $70 Mil.
Revenue was 1045 + 1122 + 1201.8 + 1119.6 = $4,488 Mil.
Gross Profit was 848.9 + 912.9 + 965.5 + 906.5 = $3,634 Mil.
Total Current Assets was $1,463 Mil.
Total Assets was $2,565 Mil.
Property, Plant and Equipment(Net PPE) was $378 Mil.
Depreciation, Depletion and Amortization(DDA) was $98 Mil.
Selling, General & Admin. Expense(SGA) was $1,966 Mil.
Total Current Liabilities was $792 Mil.
Long-Term Debt was $1,438 Mil.
Net Income was 99.4 + 87.7 + -22.9 + 95.8 = $260 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 117.4 + -118.1 + 226.9 + 141.1 = $367 Mil.
Accounts Receivable was $70 Mil.
Revenue was 1098.4 + 1102.9 + 1162.3 + 1105.4 = $4,469 Mil.
Gross Profit was 894 + 896 + 933 + 890 = $3,613 Mil.
Total Current Assets was $1,566 Mil.
Total Assets was $2,478 Mil.
Property, Plant and Equipment(Net PPE) was $339 Mil.
Depreciation, Depletion and Amortization(DDA) was $98 Mil.
Selling, General & Admin. Expense(SGA) was $1,785 Mil.
Total Current Liabilities was $1,024 Mil.
Long-Term Debt was $1,393 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)
=(70.3 / 4488.4) / (69.9 / 4469)
=0.0156626 / 0.01564108
=1.0014

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)
=(3613 / 4469) / (3633.8 / 4488.4)
=0.80845827 / 0.80959808
=0.9986

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 - (1462.5 + 378) / 2565.4) / (1 - (1566.3 + 339.2) / 2477.9)
=0.28256802 / 0.23100206
=1.2232

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
=4488.4 / 4469
=1.0043

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))
=(98 / (98 + 339.2)) / (98.3 / (98.3 + 378))
=0.22415371 / 0.20638253
=1.0861

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)
=(1966.1 / 4488.4) / (1784.5 / 4469)
=0.43804028 / 0.39930633
=1.097

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)
=((1438.4 + 791.5) / 2565.4) / ((1392.5 + 1024.4) / 2477.9)
=0.86922117 / 0.97538238
=0.8912

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
=(260 - 0 - 367.3) / 2565.4
=-0.0418

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 -2.55 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.

Herbalife Ltd Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.9971.08411.11570.94580.82891.09880.72890.81110.92771.0014
GMI 1.00320.98761.02260.99020.99061.00331.00010.99820.99170.9986
AQI 0.95950.95580.96460.93960.88710.87230.71731.22120.91451.2232
SGI 1.13811.09940.98531.17621.26341.17881.18491.02760.90131.0043
DEPI 0.99471.03480.8370.93111.03071.15391.11741.03560.90411.0861
SGAI 0.98151.02320.50070.97510.95820.99441.09141.18940.99441.0974
LVGI 1.39350.95480.8850.89941.01931.29591.03491.52120.8950.8912
TATA -0.0744-0.0462-0.0713-0.0771-0.0653-0.0602-0.0992-0.0806-0.1159-0.0418
M-score -2.85-2.54-2.62-2.73-2.75-2.64-3.16-3.12-3.19-2.55

Herbalife Ltd Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.82970.81110.75661.00841.0110.92771.10921.00420.96971.0014
GMI 0.99920.99820.99770.99960.99270.99170.99150.99130.99580.9986
AQI 1.13461.22121.2581.05981.01920.91450.95070.88440.96161.2232
SGI 1.10361.02760.96720.92210.88420.90130.93370.97111.00831.0043
DEPI 1.16441.03560.93880.89110.90280.90410.92811.04171.0811.0861
SGAI 1.67290.96130.90050.56520.25031.23031.23861.76833.21061.097
LVGI 1.51021.52121.15070.93360.89310.8950.85980.91430.89780.8912
TATA -0.1284-0.0806-0.066-0.0973-0.0805-0.1159-0.1056-0.1481-0.0554-0.0418
M-score -3.35-3.08-2.98-2.89-2.79-3.23-2.96-3.35-3.11-2.55
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