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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 13 years, the highest Beneish M-Score of Herbalife Ltd was -2.28. The lowest was -3.35. 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 * 1.0042||+||0.528 * 0.9913||+||0.404 * 0.8844||+||0.892 * 0.9711||+||0.115 * 1.0417|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1911||+||4.679 * -0.1481||-||0.327 * 0.9143|
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $94 Mil.|
Revenue was 1201.8 + 1119.6 + 1098.4 + 1102.9 = $4,523 Mil.
Gross Profit was 965.5 + 906.5 + 894 + 896 = $3,662 Mil.
Total Current Assets was $1,661 Mil.
Total Assets was $2,614 Mil.
Property, Plant and Equipment(Net PPE) was $372 Mil.
Depreciation, Depletion and Amortization(DDA) was $98 Mil.
Selling, General & Admin. Expense(SGA) was $1,338 Mil.
Total Current Liabilities was $1,458 Mil.
Long-Term Debt was $1,003 Mil.
Net Income was -22.9 + 95.8 + 84.5 + 93.6 = $251 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 226.9 + 141.1 + 135.5 + 134.5 = $638 Mil.
|Accounts Receivable was $97 Mil.
Revenue was 1162.3 + 1105.4 + 1133.6 + 1256.2 = $4,658 Mil.
Gross Profit was 933 + 890 + 914 + 1001.2 = $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 $1,156 Mil.
Total Current Liabilities was $1,098 Mil.
Long-Term Debt was $1,390 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)|
|=||(94.1 / 4522.7)||/||(96.5 / 4657.5)|
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)|
|=||(3738.2 / 4657.5)||/||(3662 / 4522.7)|
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 - (1661.3 + 371.5) / 2613.9)||/||(1 - (1460.7 + 347.3) / 2415.1)|
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))|
|=||(96.4 / (96.4 + 347.3))||/||(97.9 / (97.9 + 371.5))|
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)|
|=||(1337.5 / 4522.7)||/||(1156.4 / 4657.5)|
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)|
|=||((1003.3 + 1457.7) / 2613.9)||/||((1389.5 + 1097.5) / 2415.1)|
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|
|=||(251 - 0||-||638)||/||2613.9|
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 -3.25 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