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GuruFocus has detected 1 Warning Sign with E*TRADE Financial Corp $ETFC.
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E*TRADE Financial Corp (NAS:ETFC)
Beneish M-Score
-2.25 (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 -2.25 suggests that the company is not a manipulator.

ETFC' s Beneish M-Score Range Over the Past 10 Years
Min: -3.38   Max: 599.49
Current: -2.25

-3.38
599.49

During the past 13 years, the highest Beneish M-Score of E*TRADE Financial Corp was 599.49. The lowest was -3.38. And the median was -2.30.


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 * 0.8294+0.528 * 1+0.404 * 1.0006+0.892 * 1.4433+0.115 * 1.0914
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.7271+4.679 * -0.0239-0.327 * 0.8568
=-2.25

* 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 + 61 + 429 = $1,401 Mil.
Gross Profit was 472 + 439 + 61 + 429 = $1,401 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 / 1401)
=4.11275964 / 4.958601
=0.8294

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)
=(1401 / 1401) / (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 / 1401
=1.4433

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 / 1401)
=0.43076162 / 0.59243398
=0.7271

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 -2.25 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
GMI
AQI
SGI
DEPI
SGAI
LVGI
TATA
M-score

E*TRADE Financial Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.27461.11511.10951.24451.18911.04181.09720.70690.69410.8294
GMI 1111111111
AQI 0.99970.99970.99990.99951.00021.00031.00041.0011.00031.0006
SGI 1.0571.00350.99940.78530.7780.81120.84171.36771.41681.4433
DEPI 1.08761.05210.99710.96040.99191.05631.15351.2121.15861.0914
SGAI 0.95591.02811.03851.33951.35171.30841.24190.75370.73440.7271
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 -2.57-2.30-2.33-2.44-2.37-2.63-2.47-2.33-2.39-2.25
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