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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 169.07. The lowest was -3.36. 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 * 0.8287||+||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|
|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
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)|
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)|
|=||(2806 / 17700)||/||(2886 / 18605)|
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 - (4404 + 14292) / 20200)||/||(1 - (4456 + 13389) / 19345)|
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))|
|=||(868 / (868 + 13389))||/||(938 / (938 + 14292))|
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)|
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)|
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|
|=||(1136 - -309||-||2901)||/||20200|
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.
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