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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 Time Warner Inc was 2.33. The lowest was -5.31. And the median was -2.50.
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 Time Warner 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 * 1.0664||+||0.528 * 1.0004||+||0.404 * 1.0161||+||0.892 * 0.9802||+||0.115 * 2.4522|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.884||+||4.679 * -0.0005||-||0.327 * 1.0408|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $7,322 Mil.|
Revenue was 6564 + 7348 + 7127 + 7525 = $28,564 Mil.
Gross Profit was 3038 + 3160 + 3039 + 3107 = $12,344 Mil.
Total Current Assets was $12,139 Mil.
Total Assets was $62,674 Mil.
Property, Plant and Equipment(Net PPE) was $2,569 Mil.
Depreciation, Depletion and Amortization(DDA) was $683 Mil.
Selling, General & Admin. Expense(SGA) was $5,057 Mil.
Total Current Liabilities was $8,403 Mil.
Long-Term Debt was $22,728 Mil.
Net Income was 1035 + 971 + 970 + 718 = $3,694 Mil.
Non Operating Income was -54 + -125 + -117 + 13 = $-283 Mil.
Cash Flow from Operations was 1201 + 791 + 1009 + 1007 = $4,008 Mil.
|Accounts Receivable was $7,005 Mil.
Revenue was 6243 + 6788 + 7545 + 8565 = $29,141 Mil.
Gross Profit was 2562 + 2863 + 3385 + 3789 = $12,599 Mil.
Total Current Assets was $12,893 Mil.
Total Assets was $63,095 Mil.
Property, Plant and Equipment(Net PPE) was $2,678 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,844 Mil.
Selling, General & Admin. Expense(SGA) was $5,836 Mil.
Total Current Liabilities was $8,724 Mil.
Long-Term Debt was $21,389 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)|
|=||(7322 / 28564)||/||(7005 / 29141)|
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)|
|=||(3160 / 29141)||/||(3038 / 28564)|
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 - (12139 + 2569) / 62674)||/||(1 - (12893 + 2678) / 63095)|
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))|
|=||(2844 / (2844 + 2678))||/||(683 / (683 + 2569))|
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)|
|=||(5057 / 28564)||/||(5836 / 29141)|
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)|
|=||((22728 + 8403) / 62674)||/||((21389 + 8724) / 63095)|
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|
|=||(3694 - -283||-||4008)||/||62674|
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.
Time Warner Inc has a M-score of -2.26 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
Time Warner Inc Annual Data
Time Warner Inc Quarterly Data