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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 -0.63. The lowest was -5.52. And the median was -2.67.
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 * 0.934||+||0.528 * 0.9502||+||0.404 * 1.822||+||0.892 * 1.1381||+||0.115 * 1.0199|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9888||+||4.679 * -0.0405||-||0.327 * 0.8147|
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|Accounts Receivable was $743 Mil.|
Revenue was 2053 + 1914 + 1629 + 1625 = $7,221 Mil.
Gross Profit was 974 + 874 + 715 + 1012 = $3,575 Mil.
Total Current Assets was $2,052 Mil.
Total Assets was $21,303 Mil.
Property, Plant and Equipment(Net PPE) was $9,744 Mil.
Depreciation, Depletion and Amortization(DDA) was $912 Mil.
Selling, General & Admin. Expense(SGA) was $1,598 Mil.
Total Current Liabilities was $1,953 Mil.
Long-Term Debt was $10,990 Mil.
Net Income was 122 + 66 + 85 + 51 = $324 Mil.
Non Operating Income was -10 + -73 + -11 + -44 = $-138 Mil.
Cash Flow from Operations was 305 + 396 + 321 + 303 = $1,325 Mil.
|Accounts Receivable was $699 Mil.
Revenue was 1609 + 1602 + 1569 + 1565 = $6,345 Mil.
Gross Profit was 703 + 686 + 647 + 949 = $2,985 Mil.
Total Current Assets was $1,472 Mil.
Total Assets was $12,889 Mil.
Property, Plant and Equipment(Net PPE) was $8,260 Mil.
Depreciation, Depletion and Amortization(DDA) was $790 Mil.
Selling, General & Admin. Expense(SGA) was $1,420 Mil.
Total Current Liabilities was $1,756 Mil.
Long-Term Debt was $7,856 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)|
|=||(743 / 7221)||/||(699 / 6345)|
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)|
|=||(874 / 6345)||/||(974 / 7221)|
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 - (2052 + 9744) / 21303)||/||(1 - (1472 + 8260) / 12889)|
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))|
|=||(790 / (790 + 8260))||/||(912 / (912 + 9744))|
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)|
|=||(1598 / 7221)||/||(1420 / 6345)|
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)|
|=||((10990 + 1953) / 21303)||/||((7856 + 1756) / 12889)|
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|
|=||(324 - -138||-||1325)||/||21303|
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 -2.24 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