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GuruFocus has detected 4 Warning Signs with Varian Medical Systems Inc $VAR.
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Varian Medical Systems Inc (NYSE:VAR)
Beneish M-Score
-2.44 (As of Today)

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.

Varian Medical Systems Inc has a M-score of -2.44 suggests that the company is not a manipulator.

VAR' s Beneish M-Score Range Over the Past 10 Years
Min: -3.07   Max: -2
Current: -2.44

-3.07
-2

During the past 13 years, the highest Beneish M-Score of Varian Medical Systems Inc was -2.00. The lowest was -3.07. And the median was -2.50.


Definition

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 Varian Medical Systems 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 * 1.009+0.528 * 0.9438+0.404 * 1.2591+0.892 * 1.0339+0.115 * 0.8665
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.244+4.679 * -0.0075-0.327 * 0.9406
=-2.44

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $802 Mil.
Revenue was 763.3 + 912.481 + 789.419 + 758.767 = $3,224 Mil.
Gross Profit was 334.5 + 387.96 + 346.43 + 317.218 = $1,386 Mil.
Total Current Assets was $2,421 Mil.
Total Assets was $3,685 Mil.
Property, Plant and Equipment(Net PPE) was $375 Mil.
Depreciation, Depletion and Amortization(DDA) was $84 Mil.
Selling, General & Admin. Expense(SGA) was $619 Mil.
Total Current Liabilities was $1,524 Mil.
Long-Term Debt was $275 Mil.
Net Income was 20.4 + 117.507 + 98.795 + 96.971 = $334 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 82.2 + 151.956 + 95.217 + 31.827 = $361 Mil.
Accounts Receivable was $769 Mil.
Revenue was 757.1 + 817.829 + 784.011 + 759.406 = $3,118 Mil.
Gross Profit was 309.7 + 318.178 + 314.976 + 322.538 = $1,265 Mil.
Total Current Assets was $2,640 Mil.
Total Assets was $3,727 Mil.
Property, Plant and Equipment(Net PPE) was $373 Mil.
Depreciation, Depletion and Amortization(DDA) was $70 Mil.
Selling, General & Admin. Expense(SGA) was $481 Mil.
Total Current Liabilities was $1,589 Mil.
Long-Term Debt was $345 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(801.7 / 3223.967) / (768.548 / 3118.346)
=0.2486688 / 0.24646014
=1.009

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(1265.392 / 3118.346) / (1386.108 / 3223.967)
=0.40578948 / 0.42993864
=0.9438

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (2421.3 + 375.1) / 3684.8) / (1 - (2640.216 + 372.858) / 3726.662)
=0.24109857 / 0.19148181
=1.2591

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=3223.967 / 3118.346
=1.0339

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))
=(69.929 / (69.929 + 372.858)) / (83.6 / (83.6 + 375.1))
=0.15792921 / 0.1822542
=0.8665

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)
=(618.639 / 3223.967) / (481.018 / 3118.346)
=0.19188751 / 0.15425421
=1.244

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)
=((274.6 + 1524.1) / 3684.8) / ((345 + 1589.055) / 3726.662)
=0.48814047 / 0.51897784
=0.9406

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(333.673 - 0 - 361.2) / 3684.8
=-0.0075

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.

Varian Medical Systems Inc has a M-score of -2.44 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Varian Medical Systems Inc Annual Data

Sep07Sep08Sep09Sep10Sep11Sep12Sep13Sep14Sep15Sep16
DSRI 0.97840.81331.11670.95690.97421.00760.96271.01151.03651.1142
GMI 0.99420.98490.97730.99680.99491.02641.00360.99491.03120.9784
AQI 1.40370.87790.87661.00110.88930.99730.90411.211.44080.9544
SGI 1.09841.17931.06971.06441.10191.0811.04841.03631.01621.0383
DEPI 1.17091.0970.99650.94630.98290.9111.02611.06511.01990.8801
SGAI 0.99430.98760.98250.92761.02151.02280.99061.10570.96981.0982
LVGI 1.06420.84430.91011.05711.14280.95281.07561.01941.0121.0403
TATA -0.0361-0.04690.0063-0.0432-0.0296-0.0228-0.0049-0.0135-0.01620.0121
M-score -2.42-2.70-2.31-2.68-2.65-2.49-2.55-2.44-2.31-2.36

Varian Medical Systems Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.01150.90570.87970.87651.03651.14341.1811.23561.11421.009
GMI 0.99490.99370.99531.01711.03121.05681.0631.01980.97830.9438
AQI 1.211.09481.13821.01741.44081.27861.20341.46390.95441.2591
SGI 1.03631.03371.02371.02851.01621.01371.01981.00961.03831.0339
DEPI 1.06511.01620.96660.96371.01991.00820.99930.96970.88010.8665
SGAI 1.10571.16931.06330.98350.96980.90110.94411.06131.09811.244
LVGI 1.01941.04580.99621.00151.0121.08011.09941.09941.04030.9406
TATA -0.0135-0.02520-0.0257-0.0162-0.0163-0.01250.00680.012-0.0075
M-score -2.44-2.66-2.53-2.67-2.31-2.28-2.26-2.07-2.36-2.44
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