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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 -0.73. The lowest was -5.52. And the median was -2.61.
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 * 1.0335||+||0.528 * 0.9457||+||0.404 * 1.0938||+||0.892 * 1.0738||+||0.115 * 0.8714|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9667||+||4.679 * 0.0651||-||0.327 * 0.8464|
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $839 Mil.|
Revenue was 2056 + 2051 + 2053 + 2062 = $8,222 Mil.
Gross Profit was 1041 + 1019 + 1001 + 987 = $4,048 Mil.
Total Current Assets was $2,278 Mil.
Total Assets was $24,534 Mil.
Property, Plant and Equipment(Net PPE) was $10,073 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,201 Mil.
Selling, General & Admin. Expense(SGA) was $1,446 Mil.
Total Current Liabilities was $1,499 Mil.
Long-Term Debt was $10,871 Mil.
Net Income was 149 + 124 + 3323 + 1 = $3,597 Mil.
Non Operating Income was -45 + -10 + -52 + -165 = $-272 Mil.
Cash Flow from Operations was 631 + 510 + 556 + 575 = $2,272 Mil.
|Accounts Receivable was $756 Mil.
Revenue was 2061 + 2053 + 1914 + 1629 = $7,657 Mil.
Gross Profit was 1002 + 974 + 874 + 715 = $3,565 Mil.
Total Current Assets was $1,503 Mil.
Total Assets was $20,884 Mil.
Property, Plant and Equipment(Net PPE) was $9,900 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,013 Mil.
Selling, General & Admin. Expense(SGA) was $1,393 Mil.
Total Current Liabilities was $1,440 Mil.
Long-Term Debt was $11,001 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)|
|=||(839 / 8222)||/||(756 / 7657)|
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)|
|=||(3565 / 7657)||/||(4048 / 8222)|
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 - (2278 + 10073) / 24534)||/||(1 - (1503 + 9900) / 20884)|
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))|
|=||(1013 / (1013 + 9900))||/||(1201 / (1201 + 10073))|
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)|
|=||(1446 / 8222)||/||(1393 / 7657)|
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)|
|=||((10871 + 1499) / 24534)||/||((11001 + 1440) / 20884)|
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|
|=||(3597 - -272||-||2272)||/||24534|
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 -2.03 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