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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 Johnson & Johnson was -2.27. The lowest was -2.81. And the median was -2.62.
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 Johnson & Johnson 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 * 1.0329||+||0.528 * 1.0014||+||0.404 * 0.9543||+||0.892 * 0.9474||+||0.115 * 1.0512|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0117||+||4.679 * -0.0281||-||0.327 * 1.079|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $11,366 Mil.|
Revenue was 17102 + 17787 + 17374 + 18254 = $70,517 Mil.
Gross Profit was 11878 + 12430 + 12092 + 12401 = $48,801 Mil.
Total Current Assets was $63,494 Mil.
Total Assets was $133,266 Mil.
Property, Plant and Equipment(Net PPE) was $15,551 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,704 Mil.
Selling, General & Admin. Expense(SGA) was $21,134 Mil.
Total Current Liabilities was $25,260 Mil.
Long-Term Debt was $14,073 Mil.
Net Income was 3358 + 4516 + 4320 + 2521 = $14,715 Mil.
Non Operating Income was -420 + 931 + 348 + -963 = $-104 Mil.
Cash Flow from Operations was 6125 + 5200 + 2872 + 4365 = $18,562 Mil.
|Accounts Receivable was $11,615 Mil.
Revenue was 18467 + 19495 + 18115 + 18355 = $74,432 Mil.
Gross Profit was 13068 + 13456 + 12660 + 12400 = $51,584 Mil.
Total Current Assets was $59,973 Mil.
Total Assets was $132,097 Mil.
Property, Plant and Equipment(Net PPE) was $15,804 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,006 Mil.
Selling, General & Admin. Expense(SGA) was $22,049 Mil.
Total Current Liabilities was $22,982 Mil.
Long-Term Debt was $13,152 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)|
|=||(11366 / 70517)||/||(11615 / 74432)|
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)|
|=||(12430 / 74432)||/||(11878 / 70517)|
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 - (63494 + 15551) / 133266)||/||(1 - (59973 + 15804) / 132097)|
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))|
|=||(4006 / (4006 + 15804))||/||(3704 / (3704 + 15551))|
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)|
|=||(21134 / 70517)||/||(22049 / 74432)|
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)|
|=||((14073 + 25260) / 133266)||/||((13152 + 22982) / 132097)|
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|
|=||(14715 - -104||-||18562)||/||133266|
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.
Johnson & Johnson has a M-score of -2.67 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
Johnson & Johnson Annual Data
Johnson & Johnson Quarterly Data