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GuruFocus has detected 5 Warning Signs with International Business Machines Corp $IBM.
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International Business Machines Corp (NYSE:IBM)
Beneish M-Score
-2.76 (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.

International Business Machines Corp has a M-score of -2.76 suggests that the company is not a manipulator.

IBM' s Beneish M-Score Range Over the Past 10 Years
Min: -3.53   Max: -2.42
Current: -2.76

-3.53
-2.42

During the past 13 years, the highest Beneish M-Score of International Business Machines Corp was -2.42. The lowest was -3.53. And the median was -2.76.


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 International Business Machines Corp 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 * 0.9002+0.528 * 1.0387+0.404 * 1.0494+0.892 * 0.9777+0.115 * 0.9055
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0527+4.679 * -0.0412-0.327 * 0.9855
=-2.76

* 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 $1,057 Mil.
Revenue was 21770 + 19226 + 20238 + 18684 = $79,918 Mil.
Gross Profit was 10893 + 9013 + 9702 + 8686 = $38,294 Mil.
Total Current Assets was $43,888 Mil.
Total Assets was $117,470 Mil.
Property, Plant and Equipment(Net PPE) was $21,661 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,381 Mil.
Selling, General & Admin. Expense(SGA) was $20,478 Mil.
Total Current Liabilities was $36,275 Mil.
Long-Term Debt was $34,655 Mil.
Net Income was 4501 + 2853 + 2504 + 2014 = $11,872 Mil.
Non Operating Income was 103 + -13 + -66 + -276 = $-252 Mil.
Cash Flow from Operations was 3657 + 4213 + 3443 + 5645 = $16,958 Mil.
Accounts Receivable was $1,201 Mil.
Revenue was 22059 + 19280 + 20813 + 19590 = $81,742 Mil.
Gross Profit was 11406 + 9436 + 10390 + 9452 = $40,684 Mil.
Total Current Assets was $42,504 Mil.
Total Assets was $110,495 Mil.
Property, Plant and Equipment(Net PPE) was $21,452 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,855 Mil.
Selling, General & Admin. Expense(SGA) was $19,897 Mil.
Total Current Liabilities was $34,269 Mil.
Long-Term Debt was $33,428 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)
=(1057 / 79918) / (1201 / 81742)
=0.01322606 / 0.01469257
=0.9002

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)
=(40684 / 81742) / (38294 / 79918)
=0.49771231 / 0.47916615
=1.0387

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 - (43888 + 21661) / 117470) / (1 - (42504 + 21452) / 110495)
=0.4419937 / 0.42118648
=1.0494

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
=79918 / 81742
=0.9777

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))
=(3855 / (3855 + 21452)) / (4381 / (4381 + 21661))
=0.1523294 / 0.16822825
=0.9055

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)
=(20478 / 79918) / (19897 / 81742)
=0.25623764 / 0.2434122
=1.0527

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)
=((34655 + 36275) / 117470) / ((33428 + 34269) / 110495)
=0.60381374 / 0.61267026
=0.9855

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
=(11872 - -252 - 16958) / 117470
=-0.0412

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.

International Business Machines Corp has a M-score of -2.76 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.

International Business Machines Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.98430.92111.06440.9660.98811.02941.00490.25570.46920.9002
GMI 0.99160.95870.96360.99240.98250.95790.98910.98961.00481.0387
AQI 1.01330.9740.99821.07220.98171.05541.03371.04230.83541.0494
SGI 1.08051.0490.9241.0431.07050.96220.95620.94330.88090.9777
DEPI 1.00050.92951.05841.02120.99121.02830.99030.85931.93190.9055
SGAI 1.00770.98410.97521.02030.99311.03341.06241.01581.0051.0529
LVGI 1.07171.06330.89371.03521.01461.01781.01831.09940.96350.9855
TATA -0.0603-0.0693-0.0806-0.0587-0.0428-0.0402-0.0106-0.0578-0.0404-0.0411
M-score -2.73-2.89-2.84-2.73-2.65-2.68-2.57-3.53-3.21-2.76

International Business Machines Corp Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.13150.25750.26251.71550.72660.46920.63370.5120.97970.9002
GMI 0.99910.98060.9880.99590.99111.00481.01611.02581.03941.0387
AQI 1.06561.04230.99071.00481.00780.83541.02991.06581.06081.0494
SGI 0.9670.93680.9210.8960.87230.88090.89670.92350.95720.9777
DEPI 0.84250.85930.87310.9171.10391.93191.10371.03750.97060.9055
SGAI 1.03341.01570.96821.0251.03241.00511.06171.05811.04291.0527
LVGI 1.09981.09941.0110.99360.95940.96351.00981.01520.99910.9855
TATA -0.0434-0.0579-0.0638-0.0731-0.0522-0.0405-0.054-0.0557-0.0564-0.0412
M-score -3.54-3.53-3.55-2.27-3.07-3.21-3.14-3.23-2.77-2.76
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