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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 United Parcel Service Inc (UPS) was -0.52. The lowest was -3.65. And the median was -2.86.
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 United Parcel Service Inc (UPS) 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 * 1.0241||+||0.528 * 0.97||+||0.404 * 1.4082||+||0.892 * 1.0155||+||0.115 * 0.9499|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0237||+||4.679 * -0.1023||-||0.327 * 1.0643|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $6,055 Mil.|
Revenue was 14237 + 14095 + 13977 + 15895 = $58,204 Mil.
Gross Profit was 11091 + 11322 + 10835 + 12846 = $46,094 Mil.
Total Current Assets was $13,581 Mil.
Total Assets was $39,002 Mil.
Property, Plant and Equipment(Net PPE) was $18,163 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,040 Mil.
Selling, General & Admin. Expense(SGA) was $31,712 Mil.
Total Current Liabilities was $11,869 Mil.
Long-Term Debt was $10,044 Mil.
Net Income was 1257 + 1230 + 1026 + 453 = $3,966 Mil.
Non Operating Income was 4 + 4 + 4 + -5 = $7 Mil.
Cash Flow from Operations was 2176 + 1488 + 2751 + 1535 = $7,950 Mil.
|Accounts Receivable was $5,822 Mil.
Revenue was 14290 + 14268 + 13779 + 14976 = $57,313 Mil.
Gross Profit was 10681 + 10959 + 10273 + 12113 = $44,026 Mil.
Total Current Assets was $13,318 Mil.
Total Assets was $35,906 Mil.
Property, Plant and Equipment(Net PPE) was $17,843 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,893 Mil.
Selling, General & Admin. Expense(SGA) was $30,504 Mil.
Total Current Liabilities was $9,096 Mil.
Long-Term Debt was $9,858 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)|
|=||(6055 / 58204)||/||(5822 / 57313)|
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)|
|=||(11322 / 57313)||/||(11091 / 58204)|
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 - (13581 + 18163) / 39002)||/||(1 - (13318 + 17843) / 35906)|
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))|
|=||(1893 / (1893 + 17843))||/||(2040 / (2040 + 18163))|
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)|
|=||(31712 / 58204)||/||(30504 / 57313)|
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)|
|=||((10044 + 11869) / 39002)||/||((9858 + 9096) / 35906)|
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|
|=||(3966 - 7||-||7950)||/||39002|
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.
United Parcel Service Inc (UPS) has a M-score of -2.80 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
United Parcel Service Inc (UPS) Annual Data
United Parcel Service Inc (UPS) Quarterly Data