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Southwest Airlines Co (NYSE:LUV)
Beneish M-Score
-3.00 (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.

Southwest Airlines Co has a M-score of -3.00 suggests that the company is not a manipulator.

LUV' s 10-Year Beneish M-Score Range
Min: -3.36   Max: 169.07
Current: -3

-3.36
169.07

During the past 13 years, the highest Beneish M-Score of Southwest Airlines Co was 169.07. The lowest was -3.36. And the median was -2.69.


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 Southwest Airlines Co 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 * 0.8287+0.528 * 0.9035+0.404 * 0.9602+0.892 * 1.0511+0.115 * 0.9885
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0042+4.679 * -0.0721-0.327 * 1.0173
=-3.00

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

This Year (Dec14) TTM:Last Year (Dec13) TTM:
Accounts Receivable was $365 Mil.
Revenue was 4628 + 4800 + 5011 + 4166 = $18,605 Mil.
Gross Profit was 2886 + 2806 + 2980 + 2255 = $10,927 Mil.
Total Current Assets was $4,404 Mil.
Total Assets was $20,200 Mil.
Property, Plant and Equipment(Net PPE) was $14,292 Mil.
Depreciation, Depletion and Amortization(DDA) was $938 Mil.
Selling, General & Admin. Expense(SGA) was $5,781 Mil.
Total Current Liabilities was $5,923 Mil.
Long-Term Debt was $2,434 Mil.
Net Income was 190 + 329 + 465 + 152 = $1,136 Mil.
Non Operating Income was -293 + -66 + -3 + 53 = $-309 Mil.
Cash Flow from Operations was 204 + 240 + 1338 + 1119 = $2,901 Mil.
Accounts Receivable was $419 Mil.
Revenue was 4428 + 4545 + 4643 + 4084 = $17,700 Mil.
Gross Profit was 2484 + 2442 + 2489 + 1977 = $9,392 Mil.
Total Current Assets was $4,456 Mil.
Total Assets was $19,345 Mil.
Property, Plant and Equipment(Net PPE) was $13,389 Mil.
Depreciation, Depletion and Amortization(DDA) was $868 Mil.
Selling, General & Admin. Expense(SGA) was $5,477 Mil.
Total Current Liabilities was $5,676 Mil.
Long-Term Debt was $2,191 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)
=(365 / 18605) / (419 / 17700)
=0.01961838 / 0.02367232
=0.8287

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)
=(2806 / 17700) / (2886 / 18605)
=0.53062147 / 0.58731524
=0.9035

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 - (4404 + 14292) / 20200) / (1 - (4456 + 13389) / 19345)
=0.07445545 / 0.07753942
=0.9602

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
=18605 / 17700
=1.0511

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))
=(868 / (868 + 13389)) / (938 / (938 + 14292))
=0.06088237 / 0.06158897
=0.9885

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)
=(5781 / 18605) / (5477 / 17700)
=0.31072292 / 0.30943503
=1.0042

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)
=((2434 + 5923) / 20200) / ((2191 + 5676) / 19345)
=0.41371287 / 0.40666839
=1.0173

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
=(1136 - -309 - 2901) / 20200
=-0.0721

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.

Southwest Airlines Co has a M-score of -3.00 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 own currency.

Southwest Airlines Co Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
DSRI 0.67010.86120.98661.18531.01741.21850.8287
GMI 1.11211.08860.98521.121.00780.93050.9034
AQI 0.30730.72832.01882.25390.97590.89950.9602
SGI 1.11780.93891.16951.29361.09131.03581.0512
DEPI 0.94360.93990.97711.00660.89781.01970.9875
SGAI 1.15711.12040.91750.92910.9991.02081.0012
LVGI 1.09110.93850.95031.10110.96650.95621.0173
TATA 0.1273-0.0659-0.0644-0.0542-0.0981-0.0907-0.0721
M-score -2.37-3.04-2.21-1.75-2.85-2.74-3.00

Southwest Airlines Co Quarterly Data

Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14
DSRI 1.00381.01741.12571.0131.05081.21851.02930.82460.95810.8287
GMI 1.0030.97621.00961.01460.99130.96040.91470.89660.89910.9035
AQI 1.03680.97590.94540.87220.84860.89951.0781.26561.07930.9602
SGI 1.16091.09141.03841.01071.02471.03581.03491.05471.0551.0511
DEPI 0.89690.89660.96920.97210.98351.01860.99241.00731.00730.9885
SGAI 0.6070.99911.07871.2041.43090.86010.86510.84820.78591.0042
LVGI 0.88280.96650.98360.996710.95621.0511.03451.01341.0173
TATA -0.1054-0.0981-0.078-0.1109-0.0992-0.0908-0.0904-0.1038-0.087-0.0721
M-score -2.72-2.86-2.72-3.06-3.02-2.69-2.85-3.01-2.86-3.00
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