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Southwest Airlines Co (NYSE:LUV)
Beneish M-Score
-2.75 (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 -2.75 suggests that the company is not a manipulator.

LUV' s 10-Year Beneish M-Score Range
Min: -3.35   Max: 44.12
Current: -2.75

-3.35
44.12

During the past 13 years, the highest Beneish M-Score of Southwest Airlines Co was 44.12. The lowest was -3.35. And the median was -2.65.


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 * 1.2185+0.528 * 0.9316+0.404 * 0.8995+0.892 * 1.0358+0.115 * 1.0186
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0208+4.679 * -0.0908-0.327 * 0.9914
=-2.75

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

This Year (Dec13) TTM:Last Year (Dec12) TTM:
Accounts Receivable was $419 Mil.
Revenue was 4428 + 4545 + 4643 + 4084 = $17,700 Mil.
Gross Profit was 2484 + 2442 + 2489 + 2268 = $9,683 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 $6,500 Mil.
Total Current Liabilities was $5,676 Mil.
Long-Term Debt was $2,481 Mil.
Net Income was 212 + 259 + 224 + 59 = $754 Mil.
Non Operating Income was -26 + 59 + -47 + 46 = $32 Mil.
Cash Flow from Operations was 289 + 428 + 778 + 983 = $2,478 Mil.
Accounts Receivable was $332 Mil.
Revenue was 4173 + 4309 + 4616 + 3991 = $17,089 Mil.
Gross Profit was 2061 + 2111 + 2398 + 2139 = $8,709 Mil.
Total Current Assets was $4,227 Mil.
Total Assets was $18,596 Mil.
Property, Plant and Equipment(Net PPE) was $12,766 Mil.
Depreciation, Depletion and Amortization(DDA) was $844 Mil.
Selling, General & Admin. Expense(SGA) was $6,148 Mil.
Total Current Liabilities was $4,650 Mil.
Long-Term Debt was $3,259 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)
=(419 / 17700) / (332 / 17089)
=0.02367232 / 0.0194277
=1.2185

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)
=(2442 / 17089) / (2484 / 17700)
=0.50962608 / 0.54706215
=0.9316

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 - (4456 + 13389) / 19345) / (1 - (4227 + 12766) / 18596)
=0.07753942 / 0.08620133
=0.8995

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
=17700 / 17089
=1.0358

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))
=(844 / (844 + 12766)) / (868 / (868 + 13389))
=0.06201323 / 0.06088237
=1.0186

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)
=(6500 / 17700) / (6148 / 17089)
=0.36723164 / 0.35976359
=1.0208

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)
=((2481 + 5676) / 19345) / ((3259 + 4650) / 18596)
=0.42165934 / 0.42530652
=0.9914

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
=(754 - 32 - 2478) / 19345
=-0.0908

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 -2.75 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 1.19840.67010.86120.98661.18531.01741.2185
GMI 0.97261.11211.08860.98521.121.00780.9305
AQI 4.59330.30730.72832.01882.25390.97590.8995
SGI 1.18251.11780.93891.16951.29361.09131.0358
DEPI 1.07980.94360.93990.97711.00660.89781.0197
SGAI 1.01010.94631.12040.91750.92910.9991.0208
LVGI 1.01591.09110.93850.95031.10110.96650.9914
TATA -0.08610.1273-0.0659-0.0644-0.0542-0.0981-0.0907
M-score -1.10-2.33-3.04-2.21-1.75-2.85-2.75

Southwest Airlines Co Quarterly Data

Sep11Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13
DSRI 1.01891.18530.98921.02661.00381.01741.12571.0131.05081.2185
GMI 0.79371.15981.10191.04481.0030.97620.97640.98150.96010.9316
AQI 2.30582.25392.38470.84161.03680.97590.94540.87220.84860.8995
SGI 1.25311.29361.31561.2571.16091.09141.03841.01071.02471.0358
DEPI 1.02181.00660.95520.88010.89810.89780.97040.97210.98351.0186
SGAI 0.88070.88180.99051.07471.10191.11221.06851.03461.02441.0208
LVGI 1.10611.10111.04010.96810.88280.96650.98360.996710.9914
TATA -0.0435-0.0542-0.0731-0.0563-0.1054-0.0981-0.078-0.1109-0.0992-0.0908
M-score -2.03-1.72-1.95-2.55-2.80-2.88-2.74-3.05-2.96-2.75
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