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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 -2.48.
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 * 0.8459||+||0.528 * 0.9196||+||0.404 * 1.1305||+||0.892 * 1.2143||+||0.115 * 0.7174|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.023||+||4.679 * 0.0822||-||0.327 * 0.8352|
|This Year (Dec15) TTM:||Last Year (Dec14) TTM:|
|Accounts Receivable was $757 Mil.|
Revenue was 2053 + 2062 + 2061 + 2053 = $8,229 Mil.
Gross Profit was 1001 + 987 + 1002 + 974 = $3,964 Mil.
Total Current Assets was $1,749 Mil.
Total Assets was $24,145 Mil.
Property, Plant and Equipment(Net PPE) was $9,878 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,166 Mil.
Selling, General & Admin. Expense(SGA) was $1,467 Mil.
Total Current Liabilities was $1,416 Mil.
Long-Term Debt was $10,994 Mil.
Net Income was 3323 + 1 + -13 + 122 = $3,433 Mil.
Non Operating Income was -52 + -165 + -180 + -10 = $-407 Mil.
Cash Flow from Operations was 556 + 575 + 419 + 305 = $1,855 Mil.
|Accounts Receivable was $737 Mil.
Revenue was 1914 + 1629 + 1625 + 1609 = $6,777 Mil.
Gross Profit was 874 + 715 + 710 + 703 = $3,002 Mil.
Total Current Assets was $1,481 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 $1,181 Mil.
Total Current Liabilities was $1,906 Mil.
Long-Term Debt was $10,984 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)|
|=||(757 / 8229)||/||(737 / 6777)|
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)|
|=||(987 / 6777)||/||(1001 / 8229)|
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 - (1749 + 9878) / 24145)||/||(1 - (1481 + 9860) / 20947)|
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))|
|=||(808 / (808 + 9860))||/||(1166 / (1166 + 9878))|
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)|
|=||(1467 / 8229)||/||(1181 / 6777)|
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)|
|=||((10994 + 1416) / 24145)||/||((10984 + 1906) / 20947)|
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|
|=||(3433 - -407||-||1855)||/||24145|
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 -2.02 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