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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.
Johnson & Johnson has a M-score of -2.53 suggests that the company is not a 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 -2.61.
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 * 1.0044||+||0.528 * 0.9803||+||0.404 * 0.9464||+||0.892 * 1.0507||+||0.115 * 1.023|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9698||+||4.679 * -0.0138||-||0.327 * 1.0366|
|This Year (Jun14) TTM:||Last Year (Jun13) TTM:|
|Accounts Receivable was $12,257 Mil.|
Revenue was 19495 + 18115 + 18355 + 17575 = $73,540 Mil.
Gross Profit was 13456 + 12660 + 12400 + 12231 = $50,747 Mil.
Total Current Assets was $60,119 Mil.
Total Assets was $135,200 Mil.
Property, Plant and Equipment(Net PPE) was $16,155 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,043 Mil.
Selling, General & Admin. Expense(SGA) was $21,895 Mil.
Total Current Liabilities was $24,359 Mil.
Long-Term Debt was $13,303 Mil.
Net Income was 4326 + 4727 + 3519 + 2982 = $15,554 Mil.
Non Operating Income was -226 + -86 + -868 + -943 = $-2,123 Mil.
Cash Flow from Operations was 5529 + 3923 + 4139 + 5947 = $19,538 Mil.
|Accounts Receivable was $11,614 Mil.
Revenue was 17877 + 17505 + 17558 + 17052 = $69,992 Mil.
Gross Profit was 12388 + 11951 + 11555 + 11455 = $47,349 Mil.
Total Current Assets was $51,273 Mil.
Total Assets was $124,325 Mil.
Property, Plant and Equipment(Net PPE) was $15,794 Mil.
Depreciation, Depletion and Amortization(DDA) was $4,067 Mil.
Selling, General & Admin. Expense(SGA) was $21,488 Mil.
Total Current Liabilities was $23,767 Mil.
Long-Term Debt was $9,643 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)|
|=||(12257 / 73540)||/||(11614 / 69992)|
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)|
|=||(12660 / 69992)||/||(13456 / 73540)|
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 - (60119 + 16155) / 135200)||/||(1 - (51273 + 15794) / 124325)|
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))|
|=||(4067 / (4067 + 15794))||/||(4043 / (4043 + 16155))|
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)|
|=||(21895 / 73540)||/||(21488 / 69992)|
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)|
|=||((13303 + 24359) / 135200)||/||((9643 + 23767) / 124325)|
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|
|=||(15554 - -2123||-||19538)||/||135200|
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 -2.53 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