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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 -0.72. The lowest was -5.52. And the median was -2.49.
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 * 0.9131||+||0.528 * 0.9519||+||0.404 * 1.0873||+||0.892 * 1.0127||+||0.115 * 0.955|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.947||+||4.679 * 0.0607||-||0.327 * 0.8381|
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $749 Mil.|
Revenue was 2033 + 2056 + 2051 + 2053 = $8,193 Mil.
Gross Profit was 1021 + 1041 + 1019 + 1001 = $4,082 Mil.
Total Current Assets was $2,457 Mil.
Total Assets was $24,746 Mil.
Property, Plant and Equipment(Net PPE) was $10,167 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,224 Mil.
Selling, General & Admin. Expense(SGA) was $1,430 Mil.
Total Current Liabilities was $1,507 Mil.
Long-Term Debt was $10,875 Mil.
Net Income was 143 + 149 + 124 + 3323 = $3,739 Mil.
Non Operating Income was 1 + -45 + -10 + -52 = $-106 Mil.
Cash Flow from Operations was 645 + 631 + 510 + 556 = $2,342 Mil.
|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.
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)|
|=||(749 / 8193)||/||(810 / 8090)|
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)|
|=||(3837 / 8090)||/||(4082 / 8193)|
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 - (2457 + 10167) / 24746)||/||(1 - (1663 + 9812) / 20883)|
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))|
|=||(1122 / (1122 + 9812))||/||(1224 / (1224 + 10167))|
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)|
|=||(1430 / 8193)||/||(1491 / 8090)|
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)|
|=||((10875 + 1507) / 24746)||/||((10997 + 1470) / 20883)|
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|
|=||(3739 - -106||-||2342)||/||24746|
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 -2.20 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