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GuruFocus has detected 4 Warning Signs with Brown-Forman Corp $BF.B.
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Brown-Forman Corp (NYSE:BF.B)
Beneish M-Score
-1.95 (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.

Brown-Forman Corp has a M-score of -1.95 signals that the company is a manipulator.

BF.B' s Beneish M-Score Range Over the Past 10 Years
Min: -3.45   Max: -1.85
Current: -1.95

-3.45
-1.85

During the past 13 years, the highest Beneish M-Score of Brown-Forman Corp was -1.85. The lowest was -3.45. And the median was -2.49.


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 Brown-Forman Corp 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 * 0.9932+0.528 * 1.0259+0.404 * 1.12+0.892 * 0.9765+0.115 * 0.9856
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9762+4.679 * 0.1139-0.327 * 1.132
=-1.95

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

This Year (Jan17) TTM:Last Year (Jan16) TTM:
Accounts Receivable was $611 Mil.
Revenue was 808 + 830 + 661 + 729 = $3,028 Mil.
Gross Profit was 536 + 552 + 453 + 513 = $2,054 Mil.
Total Current Assets was $2,377 Mil.
Total Assets was $4,600 Mil.
Property, Plant and Equipment(Net PPE) was $669 Mil.
Depreciation, Depletion and Amortization(DDA) was $58 Mil.
Selling, General & Admin. Expense(SGA) was $1,060 Mil.
Total Current Liabilities was $1,130 Mil.
Long-Term Debt was $1,669 Mil.
Net Income was 182 + 197 + 144 + 522 = $1,045 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 276 + 41 + 128 + 76 = $521 Mil.
Accounts Receivable was $630 Mil.
Revenue was 809 + 854 + 699 + 739 = $3,101 Mil.
Gross Profit was 555 + 586 + 491 + 526 = $2,158 Mil.
Total Current Assets was $2,405 Mil.
Total Assets was $4,333 Mil.
Property, Plant and Equipment(Net PPE) was $621 Mil.
Depreciation, Depletion and Amortization(DDA) was $53 Mil.
Selling, General & Admin. Expense(SGA) was $1,112 Mil.
Total Current Liabilities was $1,100 Mil.
Long-Term Debt was $1,229 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)
=(611 / 3028) / (630 / 3101)
=0.20178336 / 0.20316027
=0.9932

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)
=(2158 / 3101) / (2054 / 3028)
=0.69590455 / 0.67833554
=1.0259

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 - (2377 + 669) / 4600) / (1 - (2405 + 621) / 4333)
=0.33782609 / 0.30163859
=1.12

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
=3028 / 3101
=0.9765

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))
=(53 / (53 + 621)) / (58 / (58 + 669))
=0.07863501 / 0.07977992
=0.9856

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)
=(1060 / 3028) / (1112 / 3101)
=0.35006605 / 0.358594
=0.9762

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)
=((1669 + 1130) / 4600) / ((1229 + 1100) / 4333)
=0.60847826 / 0.53750288
=1.132

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
=(1045 - 0 - 521) / 4600
=0.1139

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.

Brown-Forman Corp has a M-score of -1.95 signals that the company is likely to 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.

Brown-Forman Corp Annual Data

Apr07Apr08Apr09Apr10Apr11Apr12Apr13Apr14Apr15Apr16
DSRI 1.09630.96320.84311.14451.13270.90971.10270.9890.97790.9728
GMI 1.00771.01711.03280.97420.97871.01130.96060.98770.99741.0036
AQI 1.56081.0710.95961.00550.88171.05660.97770.91310.94330.9811
SGI 1.14091.16410.96090.99521.04741.0531.04631.04981.04780.9856
DEPI 1.12420.85080.91980.91310.89841.13931.07441.17271.08420.9793
SGAI 0.99380.96330.96220.95951.00951.01541.00621.01010.96460.9886
LVGI 1.48040.82590.94070.8051.04740.79941.55410.93661.06961.1895
TATA 0.0096-0.0276-0.0161-0.02840.0121-0.00090.01490.00240.01810.1298
M-score -2.13-2.41-2.72-2.43-2.35-2.41-2.48-2.44-2.40-1.98

Brown-Forman Corp Quarterly Data

Oct14Jan15Apr15Jul15Oct15Jan16Apr16Jul16Oct16Jan17
DSRI 1.00050.89220.97750.88810.93930.99290.97221.01650.93060.9932
GMI 0.990.99070.997711.00431.00181.00381.00941.01461.0259
AQI 0.92970.95410.94330.940.95690.90620.98111.0421.04161.12
SGI 1.04341.04151.04821.03951.0171.00550.98630.9760.97550.9765
DEPI 1.13671.10781.08421.11881.06531.06830.97930.9380.97960.9856
SGAI 1.02651.02280.96250.95770.94260.95420.98890.98640.98550.9762
LVGI 0.99640.96381.06961.21961.38281.39091.18951.24961.09421.132
TATA 0.03540.01030.01840.0111-0.00370.00140.13010.11590.11040.1139
M-score -2.30-2.50-2.40-2.57-2.66-2.62-1.98-2.01-2.06-1.95
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