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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 * 1.1552||+||0.528 * 0.9363||+||0.404 * 1.0493||+||0.892 * 1.2414||+||0.115 * 0.896|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0239||+||4.679 * -0.0392||-||0.327 * 1.0385|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $2,696 Mil.|
Revenue was 2786.8 + 2732.4 + 2190.9 + 2280 = $9,990 Mil.
Gross Profit was 2138.6 + 2047.3 + 1616.2 + 1690.2 = $7,492 Mil.
Total Current Assets was $6,996 Mil.
Total Assets was $48,455 Mil.
Property, Plant and Equipment(Net PPE) was $1,351 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,258 Mil.
Selling, General & Admin. Expense(SGA) was $2,481 Mil.
Total Current Liabilities was $4,651 Mil.
Long-Term Debt was $30,176 Mil.
Net Income was 49.5 + -53 + 73.7 + 534.9 = $605 Mil.
Non Operating Income was -34 + 5.6 + -91.1 + 169.7 = $50 Mil.
Cash Flow from Operations was 736.5 + 410.5 + 491.1 + 815.7 = $2,454 Mil.
|Accounts Receivable was $1,880 Mil.
Revenue was 2056.2 + 2041.1 + 1886.2 + 2063.8 = $8,047 Mil.
Gross Profit was 1495.4 + 1455.5 + 1367.8 + 1331.9 = $5,651 Mil.
Total Current Assets was $4,414 Mil.
Total Assets was $27,060 Mil.
Property, Plant and Equipment(Net PPE) was $1,300 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,659 Mil.
Selling, General & Admin. Expense(SGA) was $1,952 Mil.
Total Current Liabilities was $3,143 Mil.
Long-Term Debt was $15,584 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)|
|=||(2696.3 / 9990.1)||/||(1880.2 / 8047.3)|
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)|
|=||(2047.3 / 8047.3)||/||(2138.6 / 9990.1)|
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 - (6995.7 + 1351.4) / 48454.6)||/||(1 - (4413.7 + 1300.4) / 27059.6)|
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))|
|=||(1658.6 / (1658.6 + 1300.4))||/||(2257.9 / (2257.9 + 1351.4))|
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)|
|=||(2481.4 / 9990.1)||/||(1952.1 / 8047.3)|
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)|
|=||((30176.3 + 4650.5) / 48454.6)||/||((15584.3 + 3143.3) / 27059.6)|
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|
|=||(605.1 - 50.2||-||2453.8)||/||48454.6|
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 -2.35 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