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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 -2.76. 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 * 1.037||+||0.528 * 1.0011||+||0.404 * 0.9867||+||0.892 * 0.9537||+||0.115 * 1.0391|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0207||+||4.679 * -0.0287||-||0.327 * 1.0314|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $11,406 Mil.|
Revenue was 17482 + 17811 + 17102 + 17787 = $70,182 Mil.
Gross Profit was 12153 + 12138 + 11878 + 12430 = $48,599 Mil.
Total Current Assets was $62,738 Mil.
Total Assets was $136,231 Mil.
Property, Plant and Equipment(Net PPE) was $15,964 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,742 Mil.
Selling, General & Admin. Expense(SGA) was $21,044 Mil.
Total Current Liabilities was $22,134 Mil.
Long-Term Debt was $20,233 Mil.
Net Income was 4292 + 3215 + 3358 + 4516 = $15,381 Mil.
Non Operating Income was -81 + 696 + -420 + 931 = $1,126 Mil.
Cash Flow from Operations was 1763 + 5082 + 6125 + 5200 = $18,170 Mil.
|Accounts Receivable was $11,533 Mil.
Revenue was 17374 + 18254 + 18467 + 19495 = $73,590 Mil.
Gross Profit was 12092 + 12401 + 13068 + 13456 = $51,017 Mil.
Total Current Assets was $58,192 Mil.
Total Assets was $128,590 Mil.
Property, Plant and Equipment(Net PPE) was $15,364 Mil.
Depreciation, Depletion and Amortization(DDA) was $3,777 Mil.
Selling, General & Admin. Expense(SGA) was $21,618 Mil.
Total Current Liabilities was $23,836 Mil.
Long-Term Debt was $14,938 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)|
|=||(11406 / 70182)||/||(11533 / 73590)|
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)|
|=||(51017 / 73590)||/||(48599 / 70182)|
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 - (62738 + 15964) / 136231)||/||(1 - (58192 + 15364) / 128590)|
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))|
|=||(3777 / (3777 + 15364))||/||(3742 / (3742 + 15964))|
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)|
|=||(21044 / 70182)||/||(21618 / 73590)|
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)|
|=||((20233 + 22134) / 136231)||/||((14938 + 23836) / 128590)|
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|
|=||(15381 - 1126||-||18170)||/||136231|
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 -2.64 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