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GuruFocus has detected 3 Warning Signs with E*TRADE Financial Corp $ETFC.
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E*TRADE Financial Corp (NAS:ETFC)
Beneish M-Score
-2.26 (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.

E*TRADE Financial Corp has a M-score of -2.26 suggests that the company is not a manipulator.

ETFC' s Beneish M-Score Range Over the Past 10 Years
Min: -3.38   Max: 143.8
Current: -2.26

-3.38
143.8

During the past 13 years, the highest Beneish M-Score of E*TRADE Financial Corp was 143.80. The lowest was -3.38. And the median was -2.31.


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 E*TRADE Financial 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 * 0.8377+0.528 * 1+0.404 * 1.0006+0.892 * 1.429+0.115 * 1.0914
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.7344+4.679 * -0.0239-0.327 * 0.8568
=-2.26

* 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 $8,316 Mil.
Revenue was 553 + 509 + 486 + 474 = $2,022 Mil.
Gross Profit was 553 + 509 + 486 + 474 = $2,022 Mil.
Total Current Assets was $0 Mil.
Total Assets was $55,879 Mil.
Property, Plant and Equipment(Net PPE) was $239 Mil.
Depreciation, Depletion and Amortization(DDA) was $247 Mil.
Selling, General & Admin. Expense(SGA) was $871 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt was $1,400 Mil.
Net Income was 145 + 127 + 139 + 133 = $544 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 365 + 897 + 401 + 219 = $1,882 Mil.
Accounts Receivable was $6,947 Mil.
Revenue was 472 + 439 + 59 + 445 = $1,415 Mil.
Gross Profit was 472 + 439 + 59 + 445 = $1,415 Mil.
Total Current Assets was $0 Mil.
Total Assets was $47,943 Mil.
Property, Plant and Equipment(Net PPE) was $232 Mil.
Depreciation, Depletion and Amortization(DDA) was $289 Mil.
Selling, General & Admin. Expense(SGA) was $830 Mil.
Total Current Liabilities was $0 Mil.
Long-Term Debt was $1,402 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)
=(8316 / 2022) / (6947 / 1415)
=4.11275964 / 4.90954064
=0.8377

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)
=(1415 / 1415) / (2022 / 2022)
=1 / 1
=1

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 - (0 + 239) / 55879) / (1 - (0 + 232) / 47943)
=0.9957229 / 0.99516092
=1.0006

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
=2022 / 1415
=1.429

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))
=(289 / (289 + 232)) / (247 / (247 + 239))
=0.5547025 / 0.50823045
=1.0914

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)
=(871 / 2022) / (830 / 1415)
=0.43076162 / 0.58657244
=0.7344

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)
=((1400 + 0) / 55879) / ((1402 + 0) / 47943)
=0.02505413 / 0.02924306
=0.8568

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
=(544 - 0 - 1882) / 55879
=-0.0239

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.

E*TRADE Financial Corp has a M-score of -2.26 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.

E*TRADE Financial Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 8.64530.07020.92971.42630.94221.49381.10041.27461.16450.7088
GMI 1111111111
AQI 0.99970.99970.99981.00021.00031.00021.0010.99971.00021.0003
SGI 0.12885.29851.35670.9381.00030.8050.99481.0570.79441.3874
DEPI 1.07020.92560.92120.98290.99320.90690.93871.08760.99191.1586
SGAI 8.10750.2030.9250.97071.05641.26140.9520.95591.32360.7499
LVGI 1.38110.79470.75090.95710.8390.72361.03112.1140.23530.8741
TATA -0.0394-0.0568-0.0479-0.0232-0.01960.001-0.0223-0.009-0.0124-0.0219
M-score 2.250.43-2.37-2.23-2.58-2.16-2.51-2.57-2.38-2.40

E*TRADE Financial Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.27461.10551.08981.21871.16451.04041.11850.72190.70880.8377
GMI 1111111111
AQI 0.99970.99970.99990.99951.00021.00031.00041.0011.00031.0006
SGI 1.0571.01221.01750.8020.79440.81230.82561.33931.38741.429
DEPI 1.08761.05210.99710.96040.99191.05631.15351.2121.15861.0914
SGAI 0.95591.01921.02011.31171.32361.30671.26610.76970.74990.7344
LVGI 2.1140.75580.73970.52130.23530.58790.57570.81770.87410.8568
TATA -0.009-0.0017-0.007-0.019-0.0124-0.0227-0.0111-0.0077-0.0219-0.0239
M-score -2.57-2.30-2.33-2.45-2.38-2.63-2.47-2.35-2.40-2.26
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