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GuruFocus has detected 4 Warning Signs with Southwest Airlines Co $LUV.
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Southwest Airlines Co (NYSE:LUV)
Beneish M-Score
-2.73 (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 -2.73 suggests that the company is not a manipulator.

LUV' s Beneish M-Score Range Over the Past 10 Years
Min: -3.51   Max: 168.65
Current: -2.73

-3.51
168.65

During the past 13 years, the highest Beneish M-Score of Southwest Airlines Co was 168.65. The lowest was -3.51. And the median was -2.72.


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 * 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
=-2.73

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

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

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)
=(546 / 20424) / (474 / 19820)
=0.02673325 / 0.02391524
=1.1178

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)
=(13796 / 19820) / (14293 / 20424)
=0.69606458 / 0.69981394
=0.9946

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 - (4498 + 17044) / 23286) / (1 - (4024 + 15601) / 21312)
=0.07489479 / 0.07915728
=0.9462

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
=20424 / 19820
=1.0305

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))
=0.0611422 / 0.06690025
=0.9139

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)
=0.33274579 / 0.32204844
=1.0332

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)
=0.41505626 / 0.46673236
=0.8893

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
=(2241 - -162 - 4293) / 23286
=-0.0812

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.


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 local exchange's currency.

Southwest Airlines Co Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.06670.67010.86120.98661.18531.01741.21850.82871.2191.1178
GMI 0.63710.98951.22350.98521.121.00780.93050.90340.84390.9946
AQI 1.52640.30730.72832.01882.25390.97590.89950.98351.0380.9462
SGI 1.08531.11780.93891.16951.29361.09131.03581.05121.06531.0305
DEPI 0.99970.94360.93990.97711.00660.89781.01970.98751.00820.9138
SGAI 0.79910.92991.10580.91330.91220.99561.02361.02671.10261.0335
LVGI 1.24111.09110.93850.95031.10110.96650.95621.0661.07670.8893
TATA -0.14860.1273-0.0659-0.0644-0.0542-0.0981-0.0907-0.0739-0.0235-0.081
M-score -3.06-2.39-2.97-2.21-1.75-2.85-2.74-3.02-2.44-2.73

Southwest Airlines Co Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.95810.82871.02990.98980.93921.2190.95421.04841.74691.1178
GMI 0.89910.90350.88120.87240.84890.84380.88030.9070.95580.9946
AQI 1.07930.98350.86320.86891.01221.0381.01720.97660.91980.9462
SGI 1.0551.05111.06021.04421.05791.06531.07311.08191.04391.0305
DEPI 1.00730.98850.99580.98550.97281.00730.98960.9720.95480.9139
SGAI 0.68121.25611.13611.16781.34451.00531.08641.04521.05661.0332
LVGI 1.01341.0660.99070.97711.04731.07671.08311.04830.98350.8893
TATA -0.087-0.0738-0.0663-0.022-0.0283-0.0236-0.0237-0.0415-0.0588-0.0812
M-score -2.85-3.06-2.85-2.70-2.77-2.42-2.67-2.64-2.09-2.73
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