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GuruFocus has detected 2 Warning Signs with HP Inc $HPQ.
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HP Inc (NYSE:HPQ)
Beneish M-Score
-2.75 (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.

HP Inc has a M-score of -2.77 suggests that the company is not a manipulator.

HPQ' s Beneish M-Score Range Over the Past 10 Years
Min: -3.67   Max: -1.92
Current: -2.75

-3.67
-1.92

During the past 13 years, the highest Beneish M-Score of HP Inc was -1.92. The lowest was -3.67. And the median was -2.68.


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 HP Inc 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 * 0.9096+0.528 * 1.0354+0.404 * 0.6053+0.892 * 0.9373+0.115 * 4.5553
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.868+4.679 * -0.0294-0.327 * 1.9275
=-2.77

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Oct16) TTM:Last Year (Oct15) TTM:
Accounts Receivable was $4,114 Mil.
Revenue was 12512 + 11892 + 11588 + 12246 = $48,238 Mil.
Gross Profit was 2291 + 2172 + 2250 + 2285 = $8,998 Mil.
Total Current Assets was $18,468 Mil.
Total Assets was $29,010 Mil.
Property, Plant and Equipment(Net PPE) was $1,736 Mil.
Depreciation, Depletion and Amortization(DDA) was $332 Mil.
Selling, General & Admin. Expense(SGA) was $3,840 Mil.
Total Current Liabilities was $18,808 Mil.
Long-Term Debt was $6,758 Mil.
Net Income was 492 + 783 + 629 + 592 = $2,496 Mil.
Non Operating Income was 156 + -36 + 0 + 0 = $120 Mil.
Cash Flow from Operations was 698 + 1065 + 1575 + -108 = $3,230 Mil.
Accounts Receivable was $4,825 Mil.
Revenue was 12266 + 12362 + 12977 + 13858 = $51,463 Mil.
Gross Profit was 2366 + 2326 + 2562 + 2685 = $9,939 Mil.
Total Current Assets was $51,787 Mil.
Total Assets was $106,882 Mil.
Property, Plant and Equipment(Net PPE) was $1,492 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,061 Mil.
Selling, General & Admin. Expense(SGA) was $4,720 Mil.
Total Current Liabilities was $42,191 Mil.
Long-Term Debt was $6,677 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)
=(4114 / 48238) / (4825 / 51463)
=0.08528546 / 0.09375668
=0.9096

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)
=(9939 / 51463) / (8998 / 48238)
=0.19312904 / 0.18653344
=1.0354

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 - (18468 + 1736) / 29010) / (1 - (51787 + 1492) / 106882)
=0.3035505 / 0.50151569
=0.6053

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
=48238 / 51463
=0.9373

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))
=(4061 / (4061 + 1492)) / (332 / (332 + 1736))
=0.73131641 / 0.16054159
=4.5553

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)
=(3840 / 48238) / (4720 / 51463)
=0.07960529 / 0.09171638
=0.868

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)
=((6758 + 18808) / 29010) / ((6677 + 42191) / 106882)
=0.88128232 / 0.4572145
=1.9275

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
=(2496 - 120 - 3230) / 29010
=-0.0294

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.

HP Inc has a M-score of -2.77 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.

HP Inc Annual Data

Oct07Oct08Oct09Oct10Oct11Oct12Oct13Oct14Oct15Oct16
DSRI 1.08481.11141.00941.01580.97670.95181.03711.72710.3840.9096
GMI 0.97551.02671.02640.98531.02161.00861.0071.16531.02551.0354
AQI 1.1531.1860.99171.05871.08680.83060.97740.97421.24060.6053
SGI 1.13781.1350.96781.10021.00960.94590.9330.50450.90840.9373
DEPI 0.99131.08930.79351.02511.00750.96541.04181.03740.37814.5553
SGAI 0.95380.96030.90051.00351.04881.05121.05330.8010.96920.868
LVGI 1.06691.07190.92811.04631.08521.11670.93410.98510.78941.9275
TATA -0.0326-0.0553-0.0498-0.0254-0.043-0.2135-0.0615-0.0709-0.0181-0.0253
M-score -2.40-2.43-2.71-2.49-2.68-3.69-2.78-2.46-3.10-2.75

HP Inc Quarterly Data

Jul14Oct14Jan15Apr15Jul15Oct15Jan16Apr16Jul16Oct16
DSRI 0.99871.72712.41173.44077.8720.3840.28430.18230.08380.9096
GMI 0.99711.16531.31251.898-3.57211.02550.92380.6455-0.34751.0354
AQI 0.97790.97421.00630.99570.99931.24060.83860.820.73390.6053
SGI 0.99160.50450.37790.25060.11410.90841.1771.72943.74940.9373
DEPI 1.05761.03741.03811.03241.01660.37810.41440.47070.6214.5553
SGAI 1.02360.8010.67740.3651-0.73580.96921.14232.0592-0.94540.868
LVGI 0.96810.98510.98210.99451.02690.78941.59551.59651.541.9275
TATA -0.0698-0.0704-0.0503-0.0376-0.0203-0.0183-0.0736-0.0929-0.0638-0.0294
M-score -2.81-2.46-1.74-0.490.83-3.10-3.72-3.71-1.87-2.77
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