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Southwest Airlines Co (NYSE:LUV)
Beneish M-Score
-3.02 (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 -3.02 suggests that the company is not a manipulator.

LUV' s 10-Year Beneish M-Score Range
Min: -3.55   Max: -0.69
Current: -3.02

-3.55
-0.69

During the past 13 years, the highest Beneish M-Score of Southwest Airlines Co was -0.69. The lowest was -3.55. And the median was -2.68.


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 * 0.8246+0.528 * 0.9268+0.404 * 1.2656+0.892 * 1.0547+0.115 * 1.0073
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0017+4.679 * -0.1038-0.327 * 1.0345
=-3.02

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

This Year (Jun14) TTM:Last Year (Jun13) TTM:
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 $6,674 Mil.
Total Current Liabilities was $7,027 Mil.
Long-Term Debt was $2,395 Mil.
Net Income was 465 + 152 + 212 + 259 = $1,088 Mil.
Non Operating Income was -3 + 53 + -26 + 59 = $83 Mil.
Cash Flow from Operations was 1338 + 1119 + 289 + 428 = $3,174 Mil.
Accounts Receivable was $514 Mil.
Revenue was 4643 + 4084 + 4173 + 4309 = $17,209 Mil.
Gross Profit was 2489 + 2268 + 2061 + 2111 = $8,929 Mil.
Total Current Assets was $4,864 Mil.
Total Assets was $19,382 Mil.
Property, Plant and Equipment(Net PPE) was $13,164 Mil.
Depreciation, Depletion and Amortization(DDA) was $864 Mil.
Selling, General & Admin. Expense(SGA) was $6,317 Mil.
Total Current Liabilities was $5,779 Mil.
Long-Term Debt was $2,671 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)
=(447 / 18150) / (514 / 17209)
=0.0246281 / 0.02986809
=0.8246

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)
=(2255 / 17209) / (2980 / 18150)
=0.51885641 / 0.55983471
=0.9268

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 - (5317 + 13727) / 20891) / (1 - (4864 + 13164) / 19382)
=0.08841128 / 0.06985863
=1.2656

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
=18150 / 17209
=1.0547

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))
=(864 / (864 + 13164)) / (894 / (894 + 13727))
=0.0615911 / 0.06114493
=1.0073

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)
=(6674 / 18150) / (6317 / 17209)
=0.3677135 / 0.36707537
=1.0017

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)
=((2395 + 7027) / 20891) / ((2671 + 5779) / 19382)
=0.45100761 / 0.43597152
=1.0345

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
=(1088 - 83 - 3174) / 20891
=-0.1038

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 -3.02 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

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 1.70820.89570.77971.06670.67010.86120.98661.18531.01741.2185
GMI 1.00660.99821.06231.07150.77340.93921.14191.121.00780.9305
AQI 3.15672.11250.69011.52640.30210.74072.01882.25390.97590.8995
SGI 1.09991.16141.1981.08531.11780.93891.16951.29361.09131.0358
DEPI 1.0420.99350.97630.99970.94360.93990.97711.00660.89781.0197
SGAI 0.97840.95150.94280.970.92991.39410.91750.92910.9991.0208
LVGI 1.09581.08790.89751.24111.07280.95450.95031.0581.00580.9914
TATA -0.0861-0.1197-0.0814-0.11970.1252-0.0659-0.0644-0.0558-0.0981-0.0907
M-score -1.29-2.56-2.94-2.73-2.51-3.17-2.13-1.74-2.86-2.75

Southwest Airlines Co Quarterly Data

Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14
DSRI 0.98921.02661.00381.01741.12571.0131.05081.21851.02930.8246
GMI 0.9810.89650.76251.03960.94440.95080.930.90250.94590.9268
AQI 2.38470.84161.03680.97590.94540.87220.84860.89951.0781.2656
SGI 1.31561.2571.16091.09141.03841.01071.02471.03581.03491.0547
DEPI 0.95520.88010.89810.89780.97040.97210.98351.01860.99241.0073
SGAI 0.83330.90180.9290.94111.07391.16841.15541.15021.08551.0017
LVGI 1.04010.96810.88281.00580.98360.996710.99141.0511.0345
TATA -0.0746-0.0578-0.1068-0.0981-0.078-0.1109-0.0992-0.0908-0.0904-0.1038
M-score -2.00-2.60-2.90-2.83-2.76-3.09-3.00-2.78-2.87-3.02
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