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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 Level 3 Communications Inc was -0.73. The lowest was -5.52. And the median was -2.63.
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 Level 3 Communications Inc 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 * 0.9533||+||0.528 * 0.9302||+||0.404 * 1.0986||+||0.892 * 1.1393||+||0.115 * 0.8096|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.984||+||4.679 * 0.0712||-||0.327 * 0.8583|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $807 Mil.|
Revenue was 2051 + 2053 + 2062 + 2061 = $8,227 Mil.
Gross Profit was 1019 + 1001 + 987 + 1002 = $4,009 Mil.
Total Current Assets was $2,789 Mil.
Total Assets was $25,039 Mil.
Property, Plant and Equipment(Net PPE) was $9,974 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,179 Mil.
Selling, General & Admin. Expense(SGA) was $1,453 Mil.
Total Current Liabilities was $2,187 Mil.
Long-Term Debt was $10,870 Mil.
Net Income was 124 + 3323 + 1 + -13 = $3,435 Mil.
Non Operating Income was -10 + -52 + -165 + -180 = $-407 Mil.
Cash Flow from Operations was 510 + 556 + 575 + 419 = $2,060 Mil.
|Accounts Receivable was $743 Mil.
Revenue was 2053 + 1914 + 1629 + 1625 = $7,221 Mil.
Gross Profit was 974 + 874 + 715 + 710 = $3,273 Mil.
Total Current Assets was $2,052 Mil.
Total Assets was $21,303 Mil.
Property, Plant and Equipment(Net PPE) was $9,744 Mil.
Depreciation, Depletion and Amortization(DDA) was $912 Mil.
Selling, General & Admin. Expense(SGA) was $1,296 Mil.
Total Current Liabilities was $1,953 Mil.
Long-Term Debt was $10,990 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)|
|=||(807 / 8227)||/||(743 / 7221)|
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)|
|=||(1001 / 7221)||/||(1019 / 8227)|
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 - (2789 + 9974) / 25039)||/||(1 - (2052 + 9744) / 21303)|
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))|
|=||(912 / (912 + 9744))||/||(1179 / (1179 + 9974))|
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)|
|=||(1453 / 8227)||/||(1296 / 7221)|
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)|
|=||((10870 + 2187) / 25039)||/||((10990 + 1953) / 21303)|
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|
|=||(3435 - -407||-||2060)||/||25039|
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.
Level 3 Communications Inc has a M-score of -2.04 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
Level 3 Communications Inc Annual Data
Level 3 Communications Inc Quarterly Data