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Level 3 Communications Inc (NYSE:LVLT)
Beneish M-Score
-3.03 (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 -3.03 suggests that the company is not a manipulator.

LVLT' s 10-Year Beneish M-Score Range
Min: -5.52   Max: -0.63
Current: -3.03

-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 -2.82.


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 * 0.8988+0.528 * 0.7747+0.404 * 0.8995+0.892 * 1.0221+0.115 * 1.0283
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.3409+4.679 * -0.0559-0.327 * 0.9875
=-3.03

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

This Year (Sep14) TTM:Last Year (Sep13) TTM:
Accounts Receivable was $678 Mil.
Revenue was 1629 + 1625 + 1609 + 1602 = $6,465 Mil.
Gross Profit was 715 + 1012 + 995 + 1900 = $4,622 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 $2,859 Mil.
Total Current Liabilities was $1,853 Mil.
Long-Term Debt was $8,856 Mil.
Net Income was 85 + 51 + 112 + 14 = $262 Mil.
Non Operating Income was -11 + -44 + 6 + -58 = $-107 Mil.
Cash Flow from Operations was 321 + 303 + 141 + 386 = $1,151 Mil.
Accounts Receivable was $738 Mil.
Revenue was 1569 + 1565 + 1577 + 1614 = $6,325 Mil.
Gross Profit was 647 + 949 + 948 + 959 = $3,503 Mil.
Total Current Assets was $1,439 Mil.
Total Assets was $12,852 Mil.
Property, Plant and Equipment(Net PPE) was $8,230 Mil.
Depreciation, Depletion and Amortization(DDA) was $782 Mil.
Selling, General & Admin. Expense(SGA) was $2,086 Mil.
Total Current Liabilities was $1,430 Mil.
Long-Term Debt was $8,537 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)
=(678 / 6465) / (738 / 6325)
=0.10487239 / 0.11667984
=0.8988

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)
=(1012 / 6325) / (715 / 6465)
=0.55383399 / 0.71492653
=0.7747

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 - (2600 + 8268) / 13983) / (1 - (1439 + 8230) / 12852)
=0.22277051 / 0.24766573
=0.8995

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
=6465 / 6325
=1.0221

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))
=(782 / (782 + 8230)) / (762 / (762 + 8268))
=0.08677319 / 0.08438538
=1.0283

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)
=(2859 / 6465) / (2086 / 6325)
=0.44222738 / 0.32980237
=1.3409

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)
=((8856 + 1853) / 13983) / ((8537 + 1430) / 12852)
=0.76585854 / 0.77552132
=0.9875

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
=(262 - -107 - 1151) / 13983
=-0.0559

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 -3.03 suggests that the company will not 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

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 2.20220.74310.42320.98060.95820.94690.85632.03420.74880.952
GMI 0.61061.02421.27030.96550.98490.99210.97220.99071.02430.9726
AQI 1.30141.21070.96582.0231.00711.00741.06671.01830.96771.0064
SGI 0.44110.96791.96511.26381.00750.87470.95451.20661.47150.9901
DEPI 1.16881.07021.01480.8270.95570.94750.98321.56561.07560.9459
SGAI 1.78140.96650.83251.08380.8671.01641.0751.06170.94650.9795
LVGI 1.04791.06560.92160.91790.99521.05981.07720.88081.01820.9794
TATA -0.0826-0.0657-0.0882-0.0949-0.0979-0.1121-0.1104-0.0774-0.0588-0.057
M-score -2.47-2.96-2.38-2.32-2.96-3.19-3.20-1.61-2.55-2.81

Level 3 Communications Inc Quarterly Data

Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14
DSRI 1.48591.26540.74880.84130.93630.98910.9520.95950.99220.8988
GMI 1.03821.06171.02431.00580.99041.06330.84080.84170.84310.7747
AQI 1.11381.16580.96770.98910.98090.99491.00640.9790.96980.8995
SGI 1.57721.75411.47151.27211.11760.99750.99010.99651.00931.0221
DEPI 1.56821.63281.07561.03751.02280.97380.94590.97311.00381.0283
SGAI 1.03041.00640.94650.93920.94720.8251.22761.21181.18171.3409
LVGI 0.84010.8331.01821.03161.02321.01090.97940.96110.95490.9875
TATA -0.061-0.0514-0.0588-0.0626-0.0639-0.0638-0.057-0.0569-0.0528-0.0559
M-score -1.62-1.58-2.55-2.67-2.74-2.74-2.92-2.91-2.84-3.03
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