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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.
Level 3 Communications Inc has a M-score of -2.81 suggests that the company is not a manipulator.
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.
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|
|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
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)|
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)|
|=||(961 / 6376)||/||(984 / 6313)|
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 - (1454 + 8240) / 12874)||/||(1 - (1842 + 8199) / 13307)|
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))|
|=||(749 / (749 + 8199))||/||(800 / (800 + 8240))|
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)|
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)|
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|
|=||(-109 - -88||-||713)||/||12874|
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.
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