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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 -2.55.
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 * 0.9122||+||0.528 * 1.0121||+||0.404 * 0.978||+||0.892 * 1.1355||+||0.115 * 0.5526|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.085||+||4.679 * 0.0073||-||0.327 * 1.1828|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $7,005 Mil.|
Revenue was 6243 + 6788 + 7545 + 10938 = $31,514 Mil.
Gross Profit was 2562 + 2863 + 3385 + 5216 = $14,026 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 $8,140 Mil.
Selling, General & Admin. Expense(SGA) was $6,945 Mil.
Total Current Liabilities was $8,724 Mil.
Long-Term Debt was $21,389 Mil.
Net Income was 967 + 850 + 1292 + 983 = $4,092 Mil.
Non Operating Income was -135 + 6 + -6 + -52 = $-187 Mil.
Cash Flow from Operations was 632 + 338 + 1704 + 1146 = $3,820 Mil.
|Accounts Receivable was $6,763 Mil.
Revenue was 6042 + 6608 + 6939 + 8164 = $27,753 Mil.
Gross Profit was 2884 + 2700 + 3189 + 3728 = $12,501 Mil.
Total Current Assets was $11,581 Mil.
Total Assets was $66,453 Mil.
Property, Plant and Equipment(Net PPE) was $3,692 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,628 Mil.
Selling, General & Admin. Expense(SGA) was $5,637 Mil.
Total Current Liabilities was $7,668 Mil.
Long-Term Debt was $19,145 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)|
|=||(7005 / 31514)||/||(6763 / 27753)|
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)|
|=||(2863 / 27753)||/||(2562 / 31514)|
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 - (12893 + 2678) / 63095)||/||(1 - (11581 + 3692) / 66453)|
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))|
|=||(2628 / (2628 + 3692))||/||(8140 / (8140 + 2678))|
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)|
|=||(6945 / 31514)||/||(5637 / 27753)|
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)|
|=||((21389 + 8724) / 63095)||/||((19145 + 7668) / 66453)|
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|
|=||(4092 - -187||-||3820)||/||63095|
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 -2.53 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