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GuruFocus has detected 5 Warning Signs with Johnson & Johnson $JNJ.
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Johnson & Johnson (NYSE:JNJ)
Beneish M-Score
-2.48 (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.

Johnson & Johnson has a M-score of -2.48 suggests that the company is not a manipulator.

JNJ' s Beneish M-Score Range Over the Past 10 Years
Min: -2.75   Max: -2.27
Current: -2.48

-2.75
-2.27

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.


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 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
=-2.48

* 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 $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

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)
=(11699 / 71890) / (10734 / 70074)
=0.16273473 / 0.15318092
=1.0624

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)
=(48538 / 70074) / (50205 / 71890)
=0.69266775 / 0.6983586
=0.9919

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 - (65032 + 15912) / 141208) / (1 - (60210 + 15905) / 133411)
=0.42677469 / 0.42946983
=0.9937

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
=71890 / 70074
=1.0259

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))
=0.19062643 / 0.19088783
=0.9986

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)
=0.27743775 / 0.30258013
=0.9169

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)
=0.34508668 / 0.30435271
=1.1338

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
=(16375 - -975 - 18767) / 141208
=-0.01

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.


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.

Johnson & Johnson Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.94610.98631.02221.01841.02521.03390.97640.89981.03651.0624
GMI 1.01150.99981.01091.01021.01161.01340.98710.98951.00190.9919
AQI 0.92930.93651.00120.93520.98361.2420.92120.99940.95720.9937
SGI 1.14571.04340.9710.9951.05591.03371.06081.04230.94271.0259
DEPI 0.87360.99421.04090.94170.95220.95120.94081.01351.02060.9986
SGAI 1.02391.00710.94890.98591.02240.96270.98610.96481.02450.9169
LVGI 1.10761.02640.92720.98991.00530.93580.99781.04780.98811.1338
TATA -0.0483-0.0358-0.0397-0.0371-0.0116-0.024-0.0082-0.0175-0.0412-0.0087
M-score -2.70-2.66-2.63-2.66-2.47-2.40-2.53-2.63-2.70-2.48

Johnson & Johnson Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.91490.89980.93030.99891.03291.03651.0371.02211.02241.0624
GMI 0.98480.98950.99640.99221.00141.00191.00110.99950.99550.9919
AQI 0.9230.99940.95160.96360.95430.95720.98670.98011.06730.9937
SGI 1.05551.04231.02320.97750.94740.94270.95370.9861.01531.0259
DEPI 0.99021.01351.03011.041.05121.02061.03911.01161.0220.9986
SGAI 0.96820.96480.96961.00561.01171.02451.02070.98190.95670.9169
LVGI 0.97581.04781.08121.04941.0790.98811.03141.12721.12911.1338
TATA -0.0082-0.0175-0.0161-0.0226-0.0306-0.0412-0.0292-0.0173-0.0082-0.01
M-score -2.57-2.63-2.64-2.64-2.68-2.70-2.64-2.60-2.49-2.48
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