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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 -2.49.
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 * 1.0991||+||0.528 * 0.9906||+||0.404 * 0.9938||+||0.892 * 0.998||+||0.115 * 0.9744|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9773||+||4.679 * 0.004||-||0.327 * 0.9783|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $8,031 Mil.|
Revenue was 7167 + 6952 + 7308 + 7079 = $28,506 Mil.
Gross Profit was 3294 + 3112 + 3303 + 2727 = $12,436 Mil.
Total Current Assets was $13,264 Mil.
Total Assets was $65,764 Mil.
Property, Plant and Equipment(Net PPE) was $2,482 Mil.
Depreciation, Depletion and Amortization(DDA) was $682 Mil.
Selling, General & Admin. Expense(SGA) was $4,932 Mil.
Total Current Liabilities was $7,539 Mil.
Long-Term Debt was $24,419 Mil.
Net Income was 1467 + 952 + 1214 + 857 = $4,490 Mil.
Non Operating Income was -27 + -131 + -40 + 40 = $-158 Mil.
Cash Flow from Operations was 1568 + 1213 + 753 + 854 = $4,388 Mil.
|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.
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)|
|=||(8031 / 28506)||/||(7322 / 28564)|
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)|
|=||(12344 / 28564)||/||(12436 / 28506)|
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 - (13264 + 2482) / 65764)||/||(1 - (12139 + 2569) / 62674)|
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))|
|=||(683 / (683 + 2569))||/||(682 / (682 + 2482))|
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)|
|=||(4932 / 28506)||/||(5057 / 28564)|
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)|
|=||((24419 + 7539) / 65764)||/||((22728 + 8403) / 62674)|
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|
|=||(4490 - -158||-||4388)||/||65764|
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 -2.37 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