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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 168.65. The lowest was -3.36. And the median was -2.61.
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 * 1.1178||+||0.528 * 0.9946||+||0.404 * 0.9462||+||0.892 * 1.0305||+||0.115 * 0.9139|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0332||+||4.679 * -0.0812||-||0.327 * 0.8893|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $546 Mil.|
Revenue was 5075 + 5139 + 5384 + 4826 = $20,424 Mil.
Gross Profit was 3532 + 3577 + 3833 + 3351 = $14,293 Mil.
Total Current Assets was $4,498 Mil.
Total Assets was $23,286 Mil.
Property, Plant and Equipment(Net PPE) was $17,044 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,222 Mil.
Selling, General & Admin. Expense(SGA) was $6,796 Mil.
Total Current Liabilities was $6,844 Mil.
Long-Term Debt was $2,821 Mil.
Net Income was 522 + 388 + 820 + 511 = $2,241 Mil.
Non Operating Income was -27 + -64 + 43 + -114 = $-162 Mil.
Cash Flow from Operations was 709 + 856 + 1112 + 1616 = $4,293 Mil.
|Accounts Receivable was $474 Mil.
Revenue was 4977 + 5318 + 5111 + 4414 = $19,820 Mil.
Gross Profit was 3565 + 3760 + 3508 + 2963 = $13,796 Mil.
Total Current Assets was $4,024 Mil.
Total Assets was $21,312 Mil.
Property, Plant and Equipment(Net PPE) was $15,601 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,016 Mil.
Selling, General & Admin. Expense(SGA) was $6,383 Mil.
Total Current Liabilities was $7,406 Mil.
Long-Term Debt was $2,541 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)|
|=||(546 / 20424)||/||(474 / 19820)|
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)|
|=||(13796 / 19820)||/||(14293 / 20424)|
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 - (4498 + 17044) / 23286)||/||(1 - (4024 + 15601) / 21312)|
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))|
|=||(1016 / (1016 + 15601))||/||(1222 / (1222 + 17044))|
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)|
|=||(6796 / 20424)||/||(6383 / 19820)|
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)|
|=||((2821 + 6844) / 23286)||/||((2541 + 7406) / 21312)|
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|
|=||(2241 - -162||-||4293)||/||23286|
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 -2.73 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