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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 -2.75. And the median was -2.63.
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 * 0.8998||+||0.528 * 0.9895||+||0.404 * 0.9459||+||0.892 * 1.0423||+||0.115 * 1.0135|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9648||+||4.679 * -0.0169||-||0.327 * 1.0432|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $10,985 Mil.|
Revenue was 18254 + 18467 + 19495 + 18115 = $74,331 Mil.
Gross Profit was 12401 + 13068 + 13456 + 12660 = $51,585 Mil.
Total Current Assets was $59,311 Mil.
Total Assets was $131,119 Mil.
Property, Plant and Equipment(Net PPE) was $16,126 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,895 Mil.
Selling, General & Admin. Expense(SGA) was $21,954 Mil.
Total Current Liabilities was $25,085 Mil.
Long-Term Debt was $15,122 Mil.
Net Income was 2521 + 4749 + 4326 + 4727 = $16,323 Mil.
Non Operating Income was -963 + 1345 + -226 + -86 = $70 Mil.
Cash Flow from Operations was 4365 + 4654 + 5529 + 3923 = $18,471 Mil.
|Accounts Receivable was $11,713 Mil.
Revenue was 18355 + 17575 + 17877 + 17505 = $71,312 Mil.
Gross Profit was 12400 + 12231 + 12388 + 11951 = $48,970 Mil.
Total Current Assets was $56,407 Mil.
Total Assets was $132,683 Mil.
Property, Plant and Equipment(Net PPE) was $16,710 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,104 Mil.
Selling, General & Admin. Expense(SGA) was $21,830 Mil.
Total Current Liabilities was $25,675 Mil.
Long-Term Debt was $13,328 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)|
|=||(10985 / 74331)||/||(11713 / 71312)|
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)|
|=||(13068 / 71312)||/||(12401 / 74331)|
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 - (59311 + 16126) / 131119)||/||(1 - (56407 + 16710) / 132683)|
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))|
|=||(4104 / (4104 + 16710))||/||(3895 / (3895 + 16126))|
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)|
|=||(21954 / 74331)||/||(21830 / 71312)|
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)|
|=||((15122 + 25085) / 131119)||/||((13328 + 25675) / 132683)|
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|
|=||(16323 - 70||-||18471)||/||131119|
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 -2.65 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