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Level 3 Communications Inc (NYSE:LVLT)
Beneish M-Score
-2.81 (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 -2.81 suggests that the company is not a manipulator.

LVLT' s 10-Year Beneish M-Score Range
Min: -5.51   Max: -0.67
Current: -2.81

-5.51
-0.67

During the past 13 years, the highest Beneish M-Score of Level 3 Communications Inc was -0.67. The lowest was -5.51. And the median was -2.68.


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 * 0.952+0.528 * 0.9726+0.404 * 1.0064+0.892 * 0.9901+0.115 * 0.9459
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9795+4.679 * -0.057-0.327 * 0.9794
=-2.81

* 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 $673 Mil.
Revenue was 1602 + 1569 + 1565 + 1577 = $6,313 Mil.
Gross Profit was 984 + 961 + 949 + 948 = $3,842 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 $2,376 Mil.
Total Current Liabilities was $1,446 Mil.
Long-Term Debt was $8,331 Mil.
Net Income was 14 + -21 + -24 + -78 = $-109 Mil.
Non Operating Income was -58 + 6 + 14 + -50 = $-88 Mil.
Cash Flow from Operations was 386 + 104 + 216 + 7 = $713 Mil.
Accounts Receivable was $714 Mil.
Revenue was 1614 + 1590 + 1586 + 1586 = $6,376 Mil.
Gross Profit was 959 + 948 + 938 + 929 = $3,774 Mil.
Total Current Assets was $1,842 Mil.
Total Assets was $13,307 Mil.
Property, Plant and Equipment(Net PPE) was $8,199 Mil.
Depreciation, Depletion and Amortization(DDA) was $749 Mil.
Selling, General & Admin. Expense(SGA) was $2,450 Mil.
Total Current Liabilities was $1,802 Mil.
Long-Term Debt was $8,516 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)
=(673 / 6313) / (714 / 6376)
=0.10660542 / 0.11198243
=0.952

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)
=(961 / 6376) / (984 / 6313)
=0.59190715 / 0.60858546
=0.9726

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 - (1454 + 8240) / 12874) / (1 - (1842 + 8199) / 13307)
=0.24700948 / 0.24543473
=1.0064

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
=6313 / 6376
=0.9901

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))
=(749 / (749 + 8199)) / (800 / (800 + 8240))
=0.08370586 / 0.08849558
=0.9459

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)
=(2376 / 6313) / (2450 / 6376)
=0.37636623 / 0.38425345
=0.9795

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)
=((8331 + 1446) / 12874) / ((8516 + 1802) / 13307)
=0.75943763 / 0.77538138
=0.9794

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
=(-109 - -88 - 713) / 12874
=-0.057

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 -2.81 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.

Level 3 Communications Inc Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 2.20220.74310.42320.98060.95820.94690.85632.03420.74880.952
GMI 0.61061.02421.27030.96550.98490.99210.97220.99071.02430.9726
AQI 1.30141.21070.96582.0231.00711.00741.06671.01830.96771.0064
SGI 0.44110.96791.96511.26381.00750.87470.95451.20661.47150.9901
DEPI 1.16881.07021.01480.8270.95570.94750.98321.56561.07560.9459
SGAI 1.78140.96650.83251.08380.8671.01641.0751.06170.94650.9795
LVGI 1.04791.06560.92160.91790.99521.05981.07720.88081.01820.9794
TATA -0.0826-0.0657-0.0882-0.0949-0.0979-0.1121-0.1104-0.0774-0.0588-0.057
M-score -2.47-2.96-2.38-2.32-2.96-3.19-3.20-1.61-2.55-2.81

Level 3 Communications Inc Quarterly Data

Sep11Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13
DSRI 1.07462.03421.6631.48591.26540.74880.84130.93630.98910.952
GMI 0.94250.99071.01531.03821.06171.02431.00580.99040.97580.9726
AQI 0.87291.01831.09141.11381.16580.96770.98910.98090.99491.0064
SGI 0.98931.20661.39221.57721.75411.47151.27211.11760.99750.9901
DEPI 1.03841.56561.57131.56821.63281.07561.03751.02280.97380.9459
SGAI 1.05181.06171.05021.03041.00640.94650.93920.94720.94910.9795
LVGI 1.07810.88080.8490.84010.8331.01821.03161.02321.01090.9794
TATA -0.1049-0.0774-0.0646-0.061-0.0514-0.0588-0.0626-0.0639-0.0638-0.057
M-score -3.02-1.61-1.67-1.62-1.58-2.55-2.67-2.74-2.80-2.81
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