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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 * 1.2022||+||0.528 * 1.0725||+||0.404 * 1.0052||+||0.892 * 0.9492||+||0.115 * 3.497|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.8838||+||4.679 * 0.0087||-||0.327 * 1.0812|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $8,004 Mil.|
Revenue was 7348 + 7127 + 7525 + 6243 = $28,243 Mil.
Gross Profit was 3160 + 3039 + 3107 + 2562 = $11,868 Mil.
Total Current Assets was $13,810 Mil.
Total Assets was $63,425 Mil.
Property, Plant and Equipment(Net PPE) was $2,567 Mil.
Depreciation, Depletion and Amortization(DDA) was $699 Mil.
Selling, General & Admin. Expense(SGA) was $5,140 Mil.
Total Current Liabilities was $9,195 Mil.
Long-Term Debt was $22,281 Mil.
Net Income was 971 + 970 + 718 + 967 = $3,626 Mil.
Non Operating Income was -125 + -117 + 13 + -135 = $-364 Mil.
Cash Flow from Operations was 791 + 1009 + 1007 + 632 = $3,439 Mil.
|Accounts Receivable was $7,014 Mil.
Revenue was 6788 + 7545 + 8565 + 6856 = $29,754 Mil.
Gross Profit was 2863 + 3385 + 3789 + 3373 = $13,410 Mil.
Total Current Assets was $14,183 Mil.
Total Assets was $64,490 Mil.
Property, Plant and Equipment(Net PPE) was $2,716 Mil.
Depreciation, Depletion and Amortization(DDA) was $8,081 Mil.
Selling, General & Admin. Expense(SGA) was $6,127 Mil.
Total Current Liabilities was $7,207 Mil.
Long-Term Debt was $22,395 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)|
|=||(8004 / 28243)||/||(7014 / 29754)|
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)|
|=||(3039 / 29754)||/||(3160 / 28243)|
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 - (13810 + 2567) / 63425)||/||(1 - (14183 + 2716) / 64490)|
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))|
|=||(8081 / (8081 + 2716))||/||(699 / (699 + 2567))|
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)|
|=||(5140 / 28243)||/||(6127 / 29754)|
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)|
|=||((22281 + 9195) / 63425)||/||((22395 + 7207) / 64490)|
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|
|=||(3626 - -364||-||3439)||/||63425|
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 -1.98 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
Time Warner Inc Annual Data
Time Warner Inc Quarterly Data