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GuruFocus has detected 7 Warning Signs with Cummins Inc $CMI.
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Cummins Inc (NYSE:CMI)
Beneish M-Score
-2.53 (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.

Cummins Inc has a M-score of -2.53 suggests that the company is not a manipulator.

CMI' s Beneish M-Score Range Over the Past 10 Years
Min: -3.31   Max: -1.91
Current: -2.53

-3.31
-1.91

During the past 13 years, the highest Beneish M-Score of Cummins Inc was -1.91. The lowest was -3.31. 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 Cummins 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 * 1.2458+0.528 * 1.0125+0.404 * 0.9551+0.892 * 0.9527+0.115 * 0.9764
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0639+4.679 * -0.0407-0.327 * 1.0696
=-2.53

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

This Year (Mar17) TTM:Last Year (Mar16) TTM:
Accounts Receivable was $3,247 Mil.
Revenue was 4589 + 4503 + 4187 + 4528 = $17,807 Mil.
Gross Profit was 1128 + 1120 + 1079 + 1197 = $4,524 Mil.
Total Current Assets was $8,159 Mil.
Total Assets was $15,634 Mil.
Property, Plant and Equipment(Net PPE) was $3,802 Mil.
Depreciation, Depletion and Amortization(DDA) was $541 Mil.
Selling, General & Admin. Expense(SGA) was $2,093 Mil.
Total Current Liabilities was $4,662 Mil.
Long-Term Debt was $1,576 Mil.
Net Income was 396 + 378 + 289 + 406 = $1,469 Mil.
Non Operating Income was 18 + 14 + 8 + 18 = $58 Mil.
Cash Flow from Operations was 379 + 625 + 576 + 467 = $2,047 Mil.
Accounts Receivable was $2,736 Mil.
Revenue was 4291 + 4766 + 4620 + 5015 = $18,692 Mil.
Gross Profit was 1056 + 1212 + 1208 + 1332 = $4,808 Mil.
Total Current Assets was $7,468 Mil.
Total Assets was $14,827 Mil.
Property, Plant and Equipment(Net PPE) was $3,712 Mil.
Depreciation, Depletion and Amortization(DDA) was $514 Mil.
Selling, General & Admin. Expense(SGA) was $2,065 Mil.
Total Current Liabilities was $3,917 Mil.
Long-Term Debt was $1,614 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)
=(3247 / 17807) / (2736 / 18692)
=0.18234402 / 0.14637278
=1.2458

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)
=(4808 / 18692) / (4524 / 17807)
=0.25722234 / 0.25405739
=1.0125

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 - (8159 + 3802) / 15634) / (1 - (7468 + 3712) / 14827)
=0.23493668 / 0.24597019
=0.9551

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
=17807 / 18692
=0.9527

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))
=(514 / (514 + 3712)) / (541 / (541 + 3802))
=0.12162802 / 0.12456827
=0.9764

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)
=(2093 / 17807) / (2065 / 18692)
=0.11753805 / 0.11047507
=1.0639

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)
=((1576 + 4662) / 15634) / ((1614 + 3917) / 14827)
=0.39900217 / 0.37303568
=1.0696

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
=(1469 - 58 - 2047) / 15634
=-0.0407

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.

Cummins Inc has a M-score of -2.53 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.

Cummins Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.98460.70621.71580.9140.82530.92121.18751.0010.96281.1708
GMI 1.18070.95561.02070.83850.9420.99811.01840.98920.97691.0181
AQI 1.12651.08950.94760.91130.98491.07940.94050.96291.1861.0264
SGI 1.14841.09920.7531.22461.36460.96040.99811.1110.99420.9162
DEPI 1.05621.02860.98871.08741.08971.06291.02441.03960.91040.986
SGAI 0.85761.01371.13940.980.90531.02481.03681.00791.00441.0674
LVGI 0.97670.96260.90751.09610.96920.82621.121.03771.00091.1045
TATA -0.0127-0.019-0.07870-0.01930.0071-0.0433-0.046-0.0442-0.0392
M-score -2.24-2.72-2.42-2.50-2.41-2.46-2.57-2.63-2.67-2.61

Cummins Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.0011.00080.98570.99470.96280.8820.95610.99451.17081.2458
GMI 0.98920.98990.96850.97950.97690.98711.00521.00791.01811.0125
AQI 0.96290.96191.01761.0241.1861.2491.20971.18861.02640.9551
SGI 1.1111.09781.08891.03820.99420.95740.92390.91450.91620.9527
DEPI 1.03960.97750.95180.92220.91040.9550.96560.96720.9860.9764
SGAI 1.00791.01341.01771.03751.00441.01411.03251.03411.06741.0639
LVGI 1.03771.02271.01090.97991.00091.03731.08251.10711.10451.0696
TATA -0.046-0.0372-0.0297-0.0241-0.0442-0.0558-0.0659-0.0721-0.0392-0.0407
M-score -2.63-2.60-2.57-2.57-2.67-2.81-2.85-2.86-2.61-2.53
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