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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 * 1.0624||+||0.528 * 0.9919||+||0.404 * 0.9937||+||0.892 * 1.0259||+||0.115 * 0.9986|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9169||+||4.679 * -0.01||-||0.327 * 1.1338|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $11,699 Mil.|
Revenue was 18106 + 17820 + 18482 + 17482 = $71,890 Mil.
Gross Profit was 12572 + 12334 + 13146 + 12153 = $50,205 Mil.
Total Current Assets was $65,032 Mil.
Total Assets was $141,208 Mil.
Property, Plant and Equipment(Net PPE) was $15,912 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,754 Mil.
Selling, General & Admin. Expense(SGA) was $19,945 Mil.
Total Current Liabilities was $26,287 Mil.
Long-Term Debt was $22,442 Mil.
Net Income was 3814 + 4272 + 3997 + 4292 = $16,375 Mil.
Non Operating Income was -215 + -8 + -671 + -81 = $-975 Mil.
Cash Flow from Operations was 6653 + 5361 + 4990 + 1763 = $18,767 Mil.
|Accounts Receivable was $10,734 Mil.
Revenue was 17811 + 17102 + 17787 + 17374 = $70,074 Mil.
Gross Profit was 12138 + 11878 + 12430 + 12092 = $48,538 Mil.
Total Current Assets was $60,210 Mil.
Total Assets was $133,411 Mil.
Property, Plant and Equipment(Net PPE) was $15,905 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,746 Mil.
Selling, General & Admin. Expense(SGA) was $21,203 Mil.
Total Current Liabilities was $27,747 Mil.
Long-Term Debt was $12,857 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)|
|=||(11699 / 71890)||/||(10734 / 70074)|
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)|
|=||(48538 / 70074)||/||(50205 / 71890)|
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 - (65032 + 15912) / 141208)||/||(1 - (60210 + 15905) / 133411)|
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))|
|=||(3746 / (3746 + 15905))||/||(3754 / (3754 + 15912))|
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)|
|=||(19945 / 71890)||/||(21203 / 70074)|
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)|
|=||((22442 + 26287) / 141208)||/||((12857 + 27747) / 133411)|
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|
|=||(16375 - -975||-||18767)||/||141208|
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 -2.48 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