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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 12 years, the highest Beneish M-Score of Lorillard Inc was -1.64. The lowest was -2.91. And the median was -2.41.
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 Lorillard Inc 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 * 0.6803||+||0.528 * 0.9984||+||0.404 * 1.1788||+||0.892 * 1.0058||+||0.115 * 0.721|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9434||+||4.679 * -0.0402||-||0.327 * 0.995|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $13 Mil.|
Revenue was 1768 + 1831 + 1799 + 1592 = $6,990 Mil.
Gross Profit was 726 + 711 + 683 + 619 = $2,739 Mil.
Total Current Assets was $2,634 Mil.
Total Assets was $3,508 Mil.
Property, Plant and Equipment(Net PPE) was $308 Mil.
Depreciation, Depletion and Amortization(DDA) was $72 Mil.
Selling, General & Admin. Expense(SGA) was $631 Mil.
Total Current Liabilities was $1,583 Mil.
Long-Term Debt was $3,561 Mil.
Net Income was 327 + 289 + 300 + 271 = $1,187 Mil.
Non Operating Income was 1 + 0 + -2 + 0 = $-1 Mil.
Cash Flow from Operations was 619 + 635 + -628 + 703 = $1,329 Mil.
|Accounts Receivable was $19 Mil.
Revenue was 1742 + 1827 + 1804 + 1577 = $6,950 Mil.
Gross Profit was 659 + 669 + 678 + 713 = $2,719 Mil.
Total Current Assets was $2,736 Mil.
Total Assets was $3,536 Mil.
Property, Plant and Equipment(Net PPE) was $316 Mil.
Depreciation, Depletion and Amortization(DDA) was $50 Mil.
Selling, General & Admin. Expense(SGA) was $665 Mil.
Total Current Liabilities was $1,651 Mil.
Long-Term Debt was $3,560 Mil.
1. DSRI = Days Sales in Receivables Index
A large increase in DSR could be indicative of revenue inflation.
|DSRI||=||(Receivables_t / Revenue_t)||/||(Receivables_t-1 / Revenue_t-1)|
|=||(13 / 6990)||/||(19 / 6950)|
2. GMI = Gross Margin Index
Measured as the ratio of gross margin in year t-1 to gross margin in year t.
Gross margin has deteriorated when this index is above 1. A firm with poorer prospects is more likely to manipulate earnings.
|=||(GrossProfit_t-1 / Revenue_t-1)||/||(GrossProfit_t / Revenue_t)|
|=||(711 / 6950)||/||(726 / 6990)|
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
|AQI||=||(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t)||/||(1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)|
|=||(1 - (2634 + 308) / 3508)||/||(1 - (2736 + 316) / 3536)|
4. SGI = Sales Growth Index
Ratio of sales in year t to sales in year t-1.
Sales growth is not itself a measure of manipulation. However, growth companies are likely to find themselves under pressure to manipulate in order to keep up appearances.
5. DEPI = Depreciation Index
Measured as the ratio of the rate of depreciation in year t-1 to the corresponding rate in year t.
DEPI greater than 1 indicates that assets are being depreciated at a slower rate. This suggests that the firm might be revising useful asset life assumptions upwards, or adopting a new method that is income friendly.
|DEPI||=||(Depreciation_t-1 / (Depreciaton_t-1 + PPE_t-1))||/||(Depreciation_t / (Depreciaton_t + PPE_t))|
|=||(50 / (50 + 316))||/||(72 / (72 + 308))|
6. SGAI = Sales, General and Administrative expenses Index
The ratio of SGA expenses in year t relative to year t-1.
SGA expenses index > 1 means that the company is becoming less efficient in generate sales.
|SGAI||=||(SGA_t / Sales_t)||/||(SGA_t-1 /Sales_t-1)|
|=||(631 / 6990)||/||(665 / 6950)|
7. LVGI = Leverage Index
The ratio of total debt to total assets in year t relative to yeat t-1.
An LVGI > 1 indicates an increase$sgai= in leverage
|LVGI||=||((LTD_t + CurrentLiabilities_t) / TotalAssets_t)||/||((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1)|
|=||((3561 + 1583) / 3508)||/||((3560 + 1651) / 3536)|
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|
|=||(1187 - -1||-||1329)||/||3508|
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.
Lorillard Inc has a M-score of -2.91 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
Lorillard Inc Annual Data
Lorillard Inc Quarterly Data