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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 * 0.9547||+||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|
* 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
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)|
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)|
|=||(1002 / 6465)||/||(987 / 8090)|
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 - (1663 + 9812) / 20883)||/||(1 - (2600 + 8268) / 13983)|
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))|
|=||(762 / (762 + 8268))||/||(1122 / (1122 + 9812))|
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)|
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)|
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|
|=||(176 - -428||-||1695)||/||20883|
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.
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