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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 Beneish M-Score Range Over the Past 10 Years
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 -2.67.


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 * 0.9547+0.528 * 0.9177+0.404 * 2.0223+0.892 * 1.2514+0.115 * 0.8223
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.1337+4.679 * -0.0522-0.327 * 0.7795
=-2.14

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

This Year (Sep15) TTM:Last Year (Sep14) TTM:
Accounts Receivable was $810 Mil.
Revenue was 2062 + 2061 + 2053 + 1914 = $8,090 Mil.
Gross Profit was 987 + 1002 + 974 + 874 = $3,837 Mil.
Total Current Assets was $1,663 Mil.
Total Assets was $20,883 Mil.
Property, Plant and Equipment(Net PPE) was $9,812 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,122 Mil.
Selling, General & Admin. Expense(SGA) was $1,491 Mil.
Total Current Liabilities was $1,470 Mil.
Long-Term Debt was $10,997 Mil.
Net Income was 1 + -13 + 122 + 66 = $176 Mil.
Non Operating Income was -165 + -180 + -10 + -73 = $-428 Mil.
Cash Flow from Operations was 575 + 419 + 305 + 396 = $1,695 Mil.
Accounts Receivable was $678 Mil.
Revenue was 1629 + 1625 + 1609 + 1602 = $6,465 Mil.
Gross Profit was 715 + 710 + 703 + 686 = $2,814 Mil.
Total Current Assets was $2,600 Mil.
Total Assets was $13,983 Mil.
Property, Plant and Equipment(Net PPE) was $8,268 Mil.
Depreciation, Depletion and Amortization(DDA) was $762 Mil.
Selling, General & Admin. Expense(SGA) was $1,051 Mil.
Total Current Liabilities was $1,853 Mil.
Long-Term Debt was $8,856 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)
=(810 / 8090) / (678 / 6465)
=0.10012361 / 0.10487239
=0.9547

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)
=(1002 / 6465) / (987 / 8090)
=0.43526682 / 0.47428925
=0.9177

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 - (1663 + 9812) / 20883) / (1 - (2600 + 8268) / 13983)
=0.45050998 / 0.22277051
=2.0223

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
=8090 / 6465
=1.2514

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))
=(762 / (762 + 8268)) / (1122 / (1122 + 9812))
=0.08438538 / 0.10261569
=0.8223

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)
=(1491 / 8090) / (1051 / 6465)
=0.18430161 / 0.16256767
=1.1337

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)
=((10997 + 1470) / 20883) / ((8856 + 1853) / 13983)
=0.59699277 / 0.76585854
=0.7795

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
=(176 - -428 - 1695) / 20883
=-0.0522

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

Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15
DSRI 0.42320.98060.95820.94690.85632.03420.74880.9521.02010.8459
GMI 1.27030.96550.98490.99210.97220.99071.53090.95130.93980.9196
AQI 0.96582.0231.00711.00741.06671.01830.96771.00641.8551.1315
SGI 1.96511.26381.00750.87470.95451.20661.47150.99011.07351.2143
DEPI 1.01480.8270.95570.94750.98321.56561.07560.94591.16840.7174
SGAI 0.83251.08380.8671.01641.0751.06840.46110.97720.94681.023
LVGI 0.92160.91790.99521.05981.07720.88081.01820.97940.81080.8347
TATA -0.0882-0.0949-0.0979-0.1121-0.1104-0.0774-0.0588-0.057-0.03460.0822
M-score -2.38-2.32-2.96-3.19-3.20-1.61-2.20-2.82-2.15-2.02

Level 3 Communications Inc Quarterly Data

Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15Sep15Dec15
DSRI 0.98910.9520.95950.99220.89881.02010.9340.87590.95470.8459
GMI 1.06331.15691.26631.39821.27241.1551.03790.92080.91770.9196
AQI 0.99491.00640.9790.96980.89951.8551.8221.88722.02231.1315
SGI 0.99750.99010.99651.00931.02211.07351.13811.19551.25141.2143
DEPI 0.97380.94590.97311.00381.02831.16841.01990.91770.82230.7174
SGAI 0.8250.72720.58810.44110.49290.62370.8021.08191.13371.023
LVGI 1.01090.97940.96110.95490.98750.81080.81470.80180.77950.8347
TATA -0.0638-0.057-0.0569-0.0528-0.0559-0.0346-0.0405-0.0434-0.05220.0822
M-score -2.74-2.67-2.57-2.42-2.62-1.98-2.16-2.26-2.14-2.02
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