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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 Li & Fung Ltd was -2.34. The lowest was -3.06. And the median was -2.42.
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 Li & Fung Ltd 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 * 0.8279||+||0.528 * 1.0312||+||0.404 * 0.8386||+||0.892 * 1.0138||+||0.115 * 0.6286|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0389||+||4.679 * -0.02||-||0.327 * 1.3655|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $1,864 Mil.|
Revenue was $19,288 Mil.
Gross Profit was $2,182 Mil.
Total Current Assets was $3,825 Mil.
Total Assets was $8,477 Mil.
Property, Plant and Equipment(Net PPE) was $245 Mil.
Depreciation, Depletion and Amortization(DDA) was $115 Mil.
Selling, General & Admin. Expense(SGA) was $1,640 Mil.
Total Current Liabilities was $3,702 Mil.
Long-Term Debt was $1,254 Mil.
Net Income was $470 Mil.
Non Operating Income was $1 Mil.
Cash Flow from Operations was $638 Mil.
|Accounts Receivable was $2,221 Mil.
Revenue was $19,026 Mil.
Gross Profit was $2,219 Mil.
Total Current Assets was $4,298 Mil.
Total Assets was $12,465 Mil.
Property, Plant and Equipment(Net PPE) was $440 Mil.
Depreciation, Depletion and Amortization(DDA) was $110 Mil.
Selling, General & Admin. Expense(SGA) was $1,557 Mil.
Total Current Liabilities was $4,082 Mil.
Long-Term Debt was $1,255 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)|
|=||(1864.021 / 19288.499)||/||(2220.841 / 19025.512)|
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)|
|=||( / 19025.512)||/||( / 19288.499)|
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 - (3824.872 + 244.907) / 8477.022)||/||(1 - (4297.74 + 439.599) / 12465.453)|
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))|
|=||(110.463 / (110.463 + 439.599))||/||(114.983 / (114.983 + 244.907))|
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)|
|=||(1640.09 / 19288.499)||/||(1557.146 / 19025.512)|
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)|
|=||((1254.369 + 3701.518) / 8477.022)||/||((1254.915 + 4082.124) / 12465.453)|
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|
|=||(469.646 - 1.373||-||637.939)||/||8477.022|
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.
Li & Fung Ltd has a M-score of -2.94 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
Li & Fung Ltd Annual Data