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Level 3 Communications Inc (NYSE:LVLT)
Beneish M-Score
-2.04 (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 -2.04 signals that the company is a manipulator.

LVLT' s Beneish M-Score Range Over the Past 10 Years
Min: -5.52   Max: -0.73
Current: -2.04

-5.52
-0.73

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.


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 * 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
=-2.04

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

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

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)
=(807 / 8227) / (743 / 7221)
=0.09809165 / 0.10289434
=0.9533

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)
=(1001 / 7221) / (1019 / 8227)
=0.45326132 / 0.48729792
=0.9302

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 - (2789 + 9974) / 25039) / (1 - (2052 + 9744) / 21303)
=0.49027517 / 0.44627517
=1.0986

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
=8227 / 7221
=1.1393

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))
=0.08558559 / 0.10571147
=0.8096

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)
=0.17661359 / 0.17947653
=0.984

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)
=0.52146651 / 0.60756701
=0.8583

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
=(3435 - -407 - 2060) / 25039
=0.0712

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.


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

Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15
DSRI 0.88950.98060.95820.94690.84222.06820.74880.9521.02010.8459
GMI 0.69330.96550.98490.99210.98670.97631.02430.97261.37390.9196
AQI 0.96582.0231.00711.00741.06671.01830.96771.00641.85661.1305
SGI 0.9351.26381.00750.87470.97051.18681.47150.99011.07351.2143
DEPI 1.02850.8270.94170.96160.97741.57491.07560.94591.16840.7174
SGAI 1.47531.08380.8671.01641.05741.07950.93340.99330.4631.023
LVGI 0.92160.91790.99521.05981.07720.88081.01820.97940.81030.8352
TATA -0.0882-0.0949-0.0941-0.1121-0.1105-0.0771-0.0588-0.057-0.03460.0822
M-score -3.28-2.32-2.94-3.19-3.19-1.61-2.55-2.81-1.84-2.02

Level 3 Communications Inc Quarterly Data

Dec13Mar14Jun14Sep14Dec14Mar15Jun15Sep15Dec15Mar16
DSRI 0.9520.95950.99220.89881.02010.9340.87590.95470.84590.9533
GMI 0.7740.84930.93910.81871.1551.03790.92080.91770.91960.9302
AQI 1.00640.9790.96980.89951.85661.8221.88722.02231.13051.0986
SGI 0.99010.99651.00931.02211.07351.13811.19551.25141.21431.1393
DEPI 0.94590.97311.00381.02831.16841.01990.91770.82230.71740.8096
SGAI 1.48341.21370.9121.22850.62370.8021.08191.13371.0230.984
LVGI 0.97940.96110.95490.98750.81030.81470.80180.77950.83520.8583
TATA -0.057-0.0569-0.0528-0.0559-0.0346-0.0405-0.0434-0.05220.08220.0712
M-score -3.00-2.90-2.74-2.98-1.98-2.16-2.26-2.14-2.02-2.04
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