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GuruFocus has detected 4 Warning Signs with Netflix Inc $NFLX.
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Netflix Inc (NAS:NFLX)
Beneish M-Score
-1.46 (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.

Netflix Inc has a M-score of -1.46 signals that the company is a manipulator.

NFLX' s Beneish M-Score Range Over the Past 10 Years
Min: -4.46   Max: -1.13
Current: -1.46

-4.46
-1.13

During the past 13 years, the highest Beneish M-Score of Netflix Inc was -1.13. The lowest was -4.46. And the median was -2.71.


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 Netflix 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+0.528 * 0.9354+0.404 * 1.19+0.892 * 1.3274+0.115 * 1.5632
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9997+4.679 * 0.1342-0.327 * 1.0295
=-1.46

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Mar17) TTM:Last Year (Mar16) TTM:
Accounts Receivable was $0 Mil.
Revenue was 2636.635 + 2477.541 + 2290.188 + 2105.204 = $9,510 Mil.
Gross Profit was 979.611 + 823.122 + 757.344 + 632.106 = $3,192 Mil.
Total Current Assets was $5,660 Mil.
Total Assets was $14,359 Mil.
Property, Plant and Equipment(Net PPE) was $275 Mil.
Depreciation, Depletion and Amortization(DDA) was $58 Mil.
Selling, General & Admin. Expense(SGA) was $1,699 Mil.
Total Current Liabilities was $4,911 Mil.
Long-Term Debt was $3,365 Mil.
Net Income was 178.222 + 66.748 + 51.517 + 40.755 = $337 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -343.856 + -557.16 + -461.941 + -226.293 = $-1,589 Mil.
Accounts Receivable was $0 Mil.
Revenue was 1957.736 + 1823.333 + 1738.355 + 1644.694 = $7,164 Mil.
Gross Profit was 588.196 + 573.968 + 564.397 + 522.942 = $2,250 Mil.
Total Current Assets was $5,544 Mil.
Total Assets was $11,262 Mil.
Property, Plant and Equipment(Net PPE) was $166 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General & Admin. Expense(SGA) was $1,280 Mil.
Total Current Liabilities was $3,934 Mil.
Long-Term Debt was $2,372 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)
=(0 / 9509.568) / (0 / 7164.118)
=0 / 0
=1

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)
=(2249.503 / 7164.118) / (3192.183 / 9509.568)
=0.31399581 / 0.33568118
=0.9354

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 - (5660.33 + 275.083) / 14359.096) / (1 - (5543.836 + 166.254) / 11262.274)
=0.58664438 / 0.4929896
=1.19

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
=9509.568 / 7164.118
=1.3274

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))
=(61.914 / (61.914 + 166.254)) / (57.779 / (57.779 + 275.083))
=0.27135269 / 0.17358245
=1.5632

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)
=(1699.203 / 9509.568) / (1280.49 / 7164.118)
=0.17868351 / 0.17873659
=0.9997

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)
=((3365.431 + 4911.229) / 14359.096) / ((2372.218 + 3933.632) / 11262.274)
=0.57640537 / 0.55990913
=1.0295

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
=(337.242 - 0 - -1589.25) / 14359.096
=0.1342

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.

Netflix Inc has a M-score of -1.46 signals that the company is likely to 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 local exchange's currency.

Netflix Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1111111111
GMI 1.06661.04430.94110.95031.02451.37040.92270.90310.98611.0176
AQI 1.35280.77040.94341.09211.63041.11991.02021.02661.07011.2439
SGI 1.20941.13221.22391.29481.48181.12631.2121.25831.23161.3026
DEPI 0.9931.12812.94260.98070.94110.26173.49181.00321.00271.4144
SGAI 0.85570.81330.94710.95730.99750.96940.92781.07171.14020.9781
LVGI 1.14671.13271.65390.8780.88340.89291.03721.02771.14771.0118
TATA -0.329-0.3266-0.3078-0.1177-0.0298-0.00110.00730.03550.08550.1222
M-score -3.68-3.96-3.76-2.71-1.89-2.17-2.00-2.14-1.92-1.48

Netflix Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1111111111
GMI 0.90310.91790.94140.97310.98611.02971.04461.0371.01760.9354
AQI 1.02660.99981.01131.0131.07011.28121.29621.34231.24391.19
SGI 1.25831.25691.24951.23981.23161.23361.24751.26951.30261.3274
DEPI 1.00320.40510.57720.67691.00274.98254.30114.7071.41441.5632
SGAI 1.07171.1351.23341.23111.14021.070.99380.97530.97810.9997
LVGI 1.02771.1191.13821.1381.14770.95660.9520.94911.01181.0295
TATA 0.03550.04160.05980.07120.08550.08680.08940.10730.12220.1342
M-score -2.14-2.23-2.14-2.06-1.92-1.28-1.30-1.13-1.48-1.46
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