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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 11 years, the highest Beneish M-Score of Lorillard Inc was -1.10. The lowest was -3.61. 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 * 0.9478||+||0.528 * 0.9559||+||0.404 * 0.8822||+||0.892 * 1.0145||+||0.115 * 0.8263|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9902||+||4.679 * -0.0664||-||0.327 * 0.9517|
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|Accounts Receivable was $25 Mil.|
Revenue was 1668 + 1768 + 1831 + 1799 = $7,066 Mil.
Gross Profit was 666 + 726 + 711 + 683 = $2,786 Mil.
Total Current Assets was $3,308 Mil.
Total Assets was $4,154 Mil.
Property, Plant and Equipment(Net PPE) was $298 Mil.
Depreciation, Depletion and Amortization(DDA) was $70 Mil.
Selling, General & Admin. Expense(SGA) was $663 Mil.
Total Current Liabilities was $2,173 Mil.
Long-Term Debt was $3,567 Mil.
Net Income was 275 + 327 + 289 + 300 = $1,191 Mil.
Non Operating Income was 1 + 1 + 0 + -2 = $0 Mil.
Cash Flow from Operations was 841 + 619 + 635 + -628 = $1,467 Mil.
|Accounts Receivable was $26 Mil.
Revenue was 1592 + 1742 + 1827 + 1804 = $6,965 Mil.
Gross Profit was 619 + 659 + 669 + 678 = $2,625 Mil.
Total Current Assets was $3,016 Mil.
Total Assets was $3,912 Mil.
Property, Plant and Equipment(Net PPE) was $311 Mil.
Depreciation, Depletion and Amortization(DDA) was $58 Mil.
Selling, General & Admin. Expense(SGA) was $660 Mil.
Total Current Liabilities was $2,119 Mil.
Long-Term Debt was $3,561 Mil.
1. DSRI = Days Sales in Receivables Index
A large increase in DSR could be indicative of revenue inflation.
|DSRI||=||(Receivables_t / Revenue_t)||/||(Receivables_t-1 / Revenue_t-1)|
|=||(25 / 7066)||/||(26 / 6965)|
2. GMI = Gross Margin Index
Measured as the ratio of gross margin in year t-1 to gross margin in year t.
Gross margin has deteriorated when this index is above 1. A firm with poorer prospects is more likely to manipulate earnings.
|=||(GrossProfit_t-1 / Revenue_t-1)||/||(GrossProfit_t / Revenue_t)|
|=||(726 / 6965)||/||(666 / 7066)|
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
|AQI||=||(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t)||/||(1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)|
|=||(1 - (3308 + 298) / 4154)||/||(1 - (3016 + 311) / 3912)|
4. SGI = Sales Growth Index
Ratio of sales in year t to sales in year t-1.
Sales growth is not itself a measure of manipulation. However, growth companies are likely to find themselves under pressure to manipulate in order to keep up appearances.
5. DEPI = Depreciation Index
Measured as the ratio of the rate of depreciation in year t-1 to the corresponding rate in year t.
DEPI greater than 1 indicates that assets are being depreciated at a slower rate. This suggests that the firm might be revising useful asset life assumptions upwards, or adopting a new method that is income friendly.
|DEPI||=||(Depreciation_t-1 / (Depreciaton_t-1 + PPE_t-1))||/||(Depreciation_t / (Depreciaton_t + PPE_t))|
|=||(58 / (58 + 311))||/||(70 / (70 + 298))|
6. SGAI = Sales, General and Administrative expenses Index
The ratio of SGA expenses in year t relative to year t-1.
SGA expenses index > 1 means that the company is becoming less efficient in generate sales.
|SGAI||=||(SGA_t / Sales_t)||/||(SGA_t-1 /Sales_t-1)|
|=||(663 / 7066)||/||(660 / 6965)|
7. LVGI = Leverage Index
The ratio of total debt to total assets in year t relative to yeat t-1.
An LVGI > 1 indicates an increase$sgai= in leverage
|LVGI||=||((LTD_t + CurrentLiabilities_t) / TotalAssets_t)||/||((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1)|
|=||((3567 + 2173) / 4154)||/||((3561 + 2119) / 3912)|
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|
|=||(1191 - 0||-||1467)||/||4154|
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 -2.90 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