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GuruFocus has detected 5 Warning Signs with Brocade Communications Systems Inc $BRCD.
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Brocade Communications Systems Inc (NAS:BRCD)
Beneish M-Score
-2.24 (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.

Brocade Communications Systems Inc has a M-score of -2.24 suggests that the company is not a manipulator.

BRCD' s Beneish M-Score Range Over the Past 10 Years
Min: -10000000   Max: 0.13
Current: -2.24

-10000000
0.13

During the past 13 years, the highest Beneish M-Score of Brocade Communications Systems Inc was 0.13. The lowest was -10000000.00. And the median was -2.85.


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 Brocade Communications 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 * 1.4433+0.528 * 1.063+0.404 * 1.2395+0.892 * 1.0404+0.115 * 0.6839
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.1152+4.679 * -0.0368-0.327 * 1.3213
=-2.24

* 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 $262 Mil.
Revenue was 581.463 + 657.299 + 590.721 + 523.306 = $2,353 Mil.
Gross Profit was 367.123 + 420.314 + 356.899 + 350.311 = $1,495 Mil.
Total Current Assets was $1,639 Mil.
Total Assets was $4,881 Mil.
Property, Plant and Equipment(Net PPE) was $447 Mil.
Depreciation, Depletion and Amortization(DDA) was $143 Mil.
Selling, General & Admin. Expense(SGA) was $791 Mil.
Total Current Liabilities was $629 Mil.
Long-Term Debt was $1,487 Mil.
Net Income was -5.681 + 66.589 + 10.495 + 43.085 = $114 Mil.
Non Operating Income was 0 + -0.979 + 0 + 0 = $-1 Mil.
Cash Flow from Operations was -2.806 + 157.034 + 28.274 + 112.432 = $295 Mil.
Accounts Receivable was $175 Mil.
Revenue was 574.284 + 588.827 + 551.819 + 546.575 = $2,262 Mil.
Gross Profit was 388.815 + 394.277 + 371.904 + 372.209 = $1,527 Mil.
Total Current Assets was $1,661 Mil.
Total Assets was $3,909 Mil.
Property, Plant and Equipment(Net PPE) was $442 Mil.
Depreciation, Depletion and Amortization(DDA) was $88 Mil.
Selling, General & Admin. Expense(SGA) was $682 Mil.
Total Current Liabilities was $485 Mil.
Long-Term Debt was $798 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)
=(262.413 / 2352.789) / (174.757 / 2261.505)
=0.11153274 / 0.07727465
=1.4433

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)
=(1527.205 / 2261.505) / (1494.647 / 2352.789)
=0.67530472 / 0.63526606
=1.063

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 - (1639.006 + 447.209) / 4880.822) / (1 - (1661.06 + 442.158) / 3908.895)
=0.57256892 / 0.46194052
=1.2395

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
=2352.789 / 2261.505
=1.0404

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))
=(88.044 / (88.044 + 442.158)) / (143.4 / (143.4 + 447.209))
=0.16605746 / 0.24280023
=0.6839

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)
=(791.472 / 2352.789) / (682.2 / 2261.505)
=0.33639736 / 0.30165752
=1.1152

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)
=((1487.229 + 629.488) / 4880.822) / ((798.103 + 484.839) / 3908.895)
=0.43368043 / 0.32821091
=1.3213

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
=(114.488 - -0.979 - 294.934) / 4880.822
=-0.0368

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.

Brocade Communications Systems Inc has a M-score of -2.24 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.

Brocade Communications Systems Inc Annual Data

Oct07Oct08Oct09Oct10Oct11Oct12Oct13Oct14Oct15Oct16
DSRI 1.0840.76251.40750.99520.76450.8981.07780.90581.02461.1632
GMI 1.10970.91171.10830.89890.9850.96710.97510.95620.98191.0443
AQI 3.66491.46931.03040.96270.98250.88180.8950.91630.991.3166
SGI 1.64781.1861.33131.07081.02691.04210.99330.99481.02361.0363
DEPI 0.77541.19770.9011.13840.96741.03350.96461.52031.13890.7544
SGAI 1.08331.05580.97361.13821.09650.96680.94641.0011.0281.0785
LVGI 1.01821.9240.81680.85870.93780.89250.94580.99161.06071.3235
TATA -0.0561-0.0782-0.0515-0.0456-0.1145-0.1101-0.0879-0.0823-0.0266-0.0395
M-score -1.00-3.04-1.93-2.66-3.22-3.07-2.86-2.95-2.58-2.48

Brocade Communications Systems Inc Quarterly Data

Oct14Jan15Apr15Jul15Oct15Jan16Apr16Jul16Oct16Jan17
DSRI 0.90581.08650.93991.02681.02460.71641.10411.36821.16321.4433
GMI 0.95620.95980.96690.9750.98190.98780.99951.03111.04431.063
AQI 0.91630.82710.98921.00150.991.17381.02191.28881.31661.2395
SGI 0.99481.01111.01631.01511.02361.01731.00251.0171.03631.0404
DEPI 1.52031.76351.60611.38131.13890.93610.91520.86380.75440.6839
SGAI 1.0011.0281.03521.0431.0281.02921.05161.08031.07851.1152
LVGI 0.99161.25131.09121.07691.06070.86380.98771.3841.32351.3213
TATA -0.0819-0.0482-0.0367-0.0229-0.0266-0.0518-0.0369-0.0414-0.0395-0.0368
M-score -2.95-2.71-2.68-2.55-2.58-2.87-2.56-2.34-2.48-2.24
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