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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 -2.67.
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 * 1.0484||+||0.528 * 0.907||+||0.404 * 0.9766||+||0.892 * 1.0819||+||0.115 * 0.972|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0452||+||4.679 * -0.0415||-||0.327 * 1.0483|
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $524 Mil.|
Revenue was 5384 + 4826 + 4977 + 5318 = $20,505 Mil.
Gross Profit was 3833 + 3351 + 3565 + 3760 = $14,509 Mil.
Total Current Assets was $4,469 Mil.
Total Assets was $22,447 Mil.
Property, Plant and Equipment(Net PPE) was $16,294 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,111 Mil.
Selling, General & Admin. Expense(SGA) was $6,535 Mil.
Total Current Liabilities was $7,833 Mil.
Long-Term Debt was $2,536 Mil.
Net Income was 820 + 511 + 536 + 584 = $2,451 Mil.
Non Operating Income was 43 + -114 + -162 + -272 = $-505 Mil.
Cash Flow from Operations was 1112 + 1616 + 324 + 836 = $3,888 Mil.
|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 $5,779 Mil.
Total Current Liabilities was $6,876 Mil.
Long-Term Debt was $2,411 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)|
|=||(524 / 20505)||/||(462 / 18953)|
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)|
|=||(12163 / 18953)||/||(14509 / 20505)|
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 - (4469 + 16294) / 22447)||/||(1 - (4596 + 14860) / 21075)|
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))|
|=||(983 / (983 + 14860))||/||(1111 / (1111 + 16294))|
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)|
|=||(6535 / 20505)||/||(5779 / 18953)|
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)|
|=||((2536 + 7833) / 22447)||/||((2411 + 6876) / 21075)|
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|
|=||(2451 - -505||-||3888)||/||22447|
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 -2.64 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