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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 Valeant Pharmaceuticals International Inc was 2.53. The lowest was -3.58. And the median was -2.41.
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 Valeant Pharmaceuticals International 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 * 0.9502||+||0.528 * 0.928||+||0.404 * 0.669||+||0.892 * 1.3007||+||0.115 * 1.1137|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0538||+||4.679 * -0.0344||-||0.327 * 1.0676|
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|Accounts Receivable was $2,109 Mil.|
Revenue was 2190.9 + 2280 + 2056.2 + 2041.1 = $8,568 Mil.
Gross Profit was 1616.2 + 1690.2 + 1495.4 + 1455.5 = $6,257 Mil.
Total Current Assets was $16,192 Mil.
Total Assets was $38,566 Mil.
Property, Plant and Equipment(Net PPE) was $1,335 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,744 Mil.
Selling, General & Admin. Expense(SGA) was $2,118 Mil.
Total Current Liabilities was $3,097 Mil.
Long-Term Debt was $25,898 Mil.
Net Income was 73.7 + 534.9 + 275.4 + 125.8 = $1,010 Mil.
Non Operating Income was -91.1 + 169.7 + -49.6 + 5.9 = $35 Mil.
Cash Flow from Operations was 491.1 + 815.7 + 618.7 + 376 = $2,302 Mil.
|Accounts Receivable was $1,706 Mil.
Revenue was 1886.2 + 2063.8 + 1541.7 + 1095.7 = $6,587 Mil.
Gross Profit was 1367.8 + 1331.9 + 966.5 + 798 = $4,464 Mil.
Total Current Assets was $3,950 Mil.
Total Assets was $27,989 Mil.
Property, Plant and Equipment(Net PPE) was $1,215 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,076 Mil.
Selling, General & Admin. Expense(SGA) was $1,545 Mil.
Total Current Liabilities was $2,563 Mil.
Long-Term Debt was $17,148 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)|
|=||(2108.8 / 8568.2)||/||(1706.2 / 6587.4)|
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)|
|=||(1690.2 / 6587.4)||/||(1616.2 / 8568.2)|
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 - (16192.2 + 1334.8) / 38565.9)||/||(1 - (3950.1 + 1215) / 27989)|
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))|
|=||(2075.5 / (2075.5 + 1215))||/||(1743.5 / (1743.5 + 1334.8))|
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)|
|=||(2118.1 / 8568.2)||/||(1545.3 / 6587.4)|
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)|
|=||((25897.9 + 3097.1) / 38565.9)||/||((17148 + 2563) / 27989)|
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|
|=||(1009.8 - 34.9||-||2301.5)||/||38565.9|
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.
Valeant Pharmaceuticals International Inc has a M-score of -2.61 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
Valeant Pharmaceuticals International Inc Annual Data
Valeant Pharmaceuticals International Inc Quarterly Data