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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 -2.66.
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 * 1.7469||+||0.528 * 0.9558||+||0.404 * 0.9198||+||0.892 * 1.0439||+||0.115 * 0.9548|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.2964||+||4.679 * -0.0588||-||0.327 * 0.9835|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $848 Mil.|
Revenue was 5139 + 5384 + 4826 + 4977 = $20,326 Mil.
Gross Profit was 3577 + 3833 + 3351 + 3565 = $14,326 Mil.
Total Current Assets was $4,839 Mil.
Total Assets was $23,045 Mil.
Property, Plant and Equipment(Net PPE) was $16,546 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,168 Mil.
Selling, General & Admin. Expense(SGA) was $6,745 Mil.
Total Current Liabilities was $7,816 Mil.
Long-Term Debt was $2,323 Mil.
Net Income was 388 + 820 + 511 + 536 = $2,255 Mil.
Non Operating Income was -64 + 43 + -114 + -162 = $-297 Mil.
Cash Flow from Operations was 856 + 1112 + 1616 + 324 = $3,908 Mil.
|Accounts Receivable was $465 Mil.
Revenue was 5318 + 5111 + 4414 + 4628 = $19,471 Mil.
Gross Profit was 3760 + 3508 + 2963 + 2886 = $13,117 Mil.
Total Current Assets was $4,573 Mil.
Total Assets was $21,159 Mil.
Property, Plant and Equipment(Net PPE) was $14,929 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,003 Mil.
Selling, General & Admin. Expense(SGA) was $4,984 Mil.
Total Current Liabilities was $7,084 Mil.
Long-Term Debt was $2,381 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)|
|=||(848 / 20326)||/||(465 / 19471)|
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)|
|=||(13117 / 19471)||/||(14326 / 20326)|
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 - (4839 + 16546) / 23045)||/||(1 - (4573 + 14929) / 21159)|
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))|
|=||(1003 / (1003 + 14929))||/||(1168 / (1168 + 16546))|
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)|
|=||(6745 / 20326)||/||(4984 / 19471)|
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)|
|=||((2323 + 7816) / 23045)||/||((2381 + 7084) / 21159)|
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|
|=||(2255 - -297||-||3908)||/||23045|
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 -2.14 signals that the company is likely to 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