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Level 3 Communications Inc (NYSE:LVLT)
Beneish M-Score
-2.27 (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 -2.26 suggests that the company is not a manipulator.

LVLT' s 10-Year Beneish M-Score Range
Min: -5.52   Max: -0.63
Current: -2.27

-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 -2.67.


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 * 0.8759+0.528 * 0.9208+0.404 * 1.8872+0.892 * 1.1955+0.115 * 0.9177
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0819+4.679 * -0.0434-0.327 * 0.8018
=-2.26

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

This Year (Jun15) TTM:Last Year (Jun14) TTM:
Accounts Receivable was $756 Mil.
Revenue was 2061 + 2053 + 1914 + 1629 = $7,657 Mil.
Gross Profit was 1002 + 974 + 874 + 715 = $3,565 Mil.
Total Current Assets was $1,503 Mil.
Total Assets was $20,884 Mil.
Property, Plant and Equipment(Net PPE) was $9,900 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,013 Mil.
Selling, General & Admin. Expense(SGA) was $1,393 Mil.
Total Current Liabilities was $1,440 Mil.
Long-Term Debt was $11,001 Mil.
Net Income was -13 + 122 + 66 + 85 = $260 Mil.
Non Operating Income was -180 + -10 + -73 + -11 = $-274 Mil.
Cash Flow from Operations was 419 + 305 + 396 + 321 = $1,441 Mil.
Accounts Receivable was $722 Mil.
Revenue was 1625 + 1609 + 1602 + 1569 = $6,405 Mil.
Gross Profit was 710 + 703 + 686 + 647 = $2,746 Mil.
Total Current Assets was $1,539 Mil.
Total Assets was $13,028 Mil.
Property, Plant and Equipment(Net PPE) was $8,355 Mil.
Depreciation, Depletion and Amortization(DDA) was $778 Mil.
Selling, General & Admin. Expense(SGA) was $1,077 Mil.
Total Current Liabilities was $1,824 Mil.
Long-Term Debt was $7,855 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)
=(756 / 7657) / (722 / 6405)
=0.09873319 / 0.11272443
=0.8759

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)
=(974 / 6405) / (1002 / 7657)
=0.42872756 / 0.46558704
=0.9208

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 - (1503 + 9900) / 20884) / (1 - (1539 + 8355) / 13028)
=0.45398391 / 0.2405588
=1.8872

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
=7657 / 6405
=1.1955

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))
=(778 / (778 + 8355)) / (1013 / (1013 + 9900))
=0.08518559 / 0.09282507
=0.9177

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)
=(1393 / 7657) / (1077 / 6405)
=0.18192504 / 0.16814988
=1.0819

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)
=((11001 + 1440) / 20884) / ((7855 + 1824) / 13028)
=0.59571921 / 0.74293829
=0.8018

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
=(260 - -274 - 1441) / 20884
=-0.0434

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 -2.26 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

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

Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15
DSRI 0.84130.93630.98910.9520.95950.99220.89881.02010.9340.8759
GMI 1.00580.99041.06331.15691.26631.39821.27241.1551.03790.9208
AQI 0.98910.98090.99491.00640.9790.96980.89951.8551.8221.8872
SGI 1.27211.11760.99750.99010.99651.00931.02211.07351.13811.1955
DEPI 1.03751.02280.97380.94590.97311.00381.02831.16841.01990.9177
SGAI 0.93920.94720.8250.72720.58810.44110.49290.62370.8021.0819
LVGI 1.03161.02321.01090.97940.96110.95490.98750.81080.81470.8018
TATA -0.0626-0.0639-0.0638-0.057-0.0569-0.0528-0.0559-0.0346-0.0405-0.0434
M-score -2.67-2.74-2.74-2.67-2.57-2.42-2.62-1.98-2.16-2.26
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