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Level 3 Communications Inc (NYSE:LVLT)
Beneish M-Score
-2.14 (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.

Level 3 Communications Inc has a M-score of -2.14 signals that the company is a manipulator.

LVLT' s 10-Year Beneish M-Score Range
Min: -5.52   Max: -0.63
Current: -2.14

-5.52
-0.63

During the past 13 years, the highest Beneish M-Score of Level 3 Communications Inc was -0.63. The lowest was -5.52. And the median was -2.55.


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 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 * 1.0201+0.528 * 0.9642+0.404 * 1.855+0.892 * 1.0735+0.115 * 1.1684
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9373+4.679 * -0.0346-0.327 * 0.8108
=-2.14

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

This Year (Dec14) TTM:Last Year (Dec13) TTM:
Accounts Receivable was $737 Mil.
Revenue was 1914 + 1629 + 1625 + 1609 = $6,777 Mil.
Gross Profit was 874 + 715 + 1012 + 995 = $3,596 Mil.
Total Current Assets was $1,489 Mil.
Total Assets was $20,947 Mil.
Property, Plant and Equipment(Net PPE) was $9,860 Mil.
Depreciation, Depletion and Amortization(DDA) was $808 Mil.
Selling, General & Admin. Expense(SGA) was $1,775 Mil.
Total Current Liabilities was $1,914 Mil.
Long-Term Debt was $10,984 Mil.
Net Income was 66 + 85 + 51 + 112 = $314 Mil.
Non Operating Income was -73 + -11 + -44 + 6 = $-122 Mil.
Cash Flow from Operations was 396 + 321 + 303 + 141 = $1,161 Mil.
Accounts Receivable was $673 Mil.
Revenue was 1602 + 1569 + 1565 + 1577 = $6,313 Mil.
Gross Profit was 686 + 647 + 949 + 948 = $3,230 Mil.
Total Current Assets was $1,454 Mil.
Total Assets was $12,874 Mil.
Property, Plant and Equipment(Net PPE) was $8,240 Mil.
Depreciation, Depletion and Amortization(DDA) was $800 Mil.
Selling, General & Admin. Expense(SGA) was $1,764 Mil.
Total Current Liabilities was $1,446 Mil.
Long-Term Debt was $8,331 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)
=(737 / 6777) / (673 / 6313)
=0.10875018 / 0.10660542
=1.0201

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)
=(715 / 6313) / (874 / 6777)
=0.51164264 / 0.53061827
=0.9642

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 - (1489 + 9860) / 20947) / (1 - (1454 + 8240) / 12874)
=0.45820404 / 0.24700948
=1.855

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
=6777 / 6313
=1.0735

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))
=(800 / (800 + 8240)) / (808 / (808 + 9860))
=0.08849558 / 0.07574053
=1.1684

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)
=(1775 / 6777) / (1764 / 6313)
=0.2619153 / 0.27942341
=0.9373

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)
=((10984 + 1914) / 20947) / ((8331 + 1446) / 12874)
=0.6157445 / 0.75943763
=0.8108

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
=(314 - -122 - 1161) / 20947
=-0.0346

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 -2.14 signals that the company is likely to 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.

Level 3 Communications Inc Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
DSRI 0.74310.42320.98060.95820.94690.85632.03420.74880.9521.0201
GMI 1.02421.27030.96550.98490.99210.97220.99071.02431.42190.9398
AQI 1.21070.96582.0231.00711.00741.06671.01830.96771.00641.855
SGI 0.96791.96511.26381.00750.87470.95451.20661.47150.99011.0735
DEPI 1.07021.01480.8270.95570.94750.98321.56561.07560.94591.1684
SGAI 0.96650.83251.08380.8671.01641.0751.06170.94650.4790.9468
LVGI 1.06560.92160.91790.99521.05981.07720.88081.01820.97940.8108
TATA -0.0657-0.0882-0.0949-0.0979-0.1121-0.1104-0.0774-0.0588-0.057-0.0346
M-score -2.96-2.38-2.32-2.96-3.19-3.20-1.61-2.55-2.48-2.15

Level 3 Communications Inc Quarterly Data

Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14
DSRI 1.26540.74880.84130.93630.98910.9520.95950.99220.89881.0201
GMI 1.06171.02431.00580.99041.06331.15691.15351.14951.05060.9642
AQI 1.16580.96770.98910.98090.99491.00640.9790.96980.89951.855
SGI 1.75411.47151.27211.11760.99750.99010.99651.00931.02211.0735
DEPI 1.63281.07561.03751.02280.97380.94590.97311.00381.02831.1684
SGAI 1.00640.94650.93920.94720.8250.72720.7090.68440.77150.9373
LVGI 0.8331.01821.03161.02321.01090.97940.96110.95490.98750.8108
TATA -0.0514-0.0588-0.0626-0.0639-0.0638-0.057-0.0569-0.0528-0.0559-0.0346
M-score -1.58-2.55-2.67-2.74-2.74-2.67-2.65-2.59-2.78-2.14
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