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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 Southwest Airlines Co was 168.89. The lowest was -3.62. And the median was -2.69.
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 * 0.9898||+||0.528 * 0.8724||+||0.404 * 0.8689||+||0.892 * 1.0442||+||0.115 * 0.9855|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0246||+||4.679 * -0.022||-||0.327 * 0.9771|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $462 Mil.|
Revenue was 5111 + 4414 + 4628 + 4800 = $18,953 Mil.
Gross Profit was 3508 + 2963 + 2886 + 2806 = $12,163 Mil.
Total Current Assets was $4,596 Mil.
Total Assets was $21,075 Mil.
Property, Plant and Equipment(Net PPE) was $14,860 Mil.
Depreciation, Depletion and Amortization(DDA) was $983 Mil.
Selling, General & Admin. Expense(SGA) was $6,609 Mil.
Total Current Liabilities was $6,876 Mil.
Long-Term Debt was $2,411 Mil.
Net Income was 608 + 453 + 190 + 329 = $1,580 Mil.
Non Operating Income was -88 + -32 + -293 + -66 = $-479 Mil.
Cash Flow from Operations was 627 + 1452 + 204 + 240 = $2,523 Mil.
|Accounts Receivable was $447 Mil.
Revenue was 5011 + 4166 + 4428 + 4545 = $18,150 Mil.
Gross Profit was 2980 + 2255 + 2484 + 2442 = $10,161 Mil.
Total Current Assets was $5,317 Mil.
Total Assets was $20,891 Mil.
Property, Plant and Equipment(Net PPE) was $13,727 Mil.
Depreciation, Depletion and Amortization(DDA) was $894 Mil.
Selling, General & Admin. Expense(SGA) was $6,177 Mil.
Total Current Liabilities was $7,027 Mil.
Long-Term Debt was $2,395 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)|
|=||(462 / 18953)||/||(447 / 18150)|
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)|
|=||(2963 / 18150)||/||(3508 / 18953)|
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 - (4596 + 14860) / 21075)||/||(1 - (5317 + 13727) / 20891)|
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))|
|=||(894 / (894 + 13727))||/||(983 / (983 + 14860))|
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)|
|=||(6609 / 18953)||/||(6177 / 18150)|
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)|
|=||((2411 + 6876) / 21075)||/||((2395 + 7027) / 20891)|
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|
|=||(1580 - -479||-||2523)||/||21075|
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 -2.67 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
Southwest Airlines Co Annual Data
Southwest Airlines Co Quarterly Data