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GuruFocus has detected 6 Warning Signs with Herbalife Ltd $HLF.
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Herbalife Ltd (NYSE:HLF)
Beneish M-Score
-2.61 (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.

Herbalife Ltd has a M-score of -2.61 suggests that the company is not a manipulator.

HLF' s Beneish M-Score Range Over the Past 10 Years
Min: -3.35   Max: -2.28
Current: -2.61

-3.35
-2.28

During the past 13 years, the highest Beneish M-Score of Herbalife Ltd was -2.28. The lowest was -3.35. And the median was -2.75.


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 Herbalife Ltd 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 * 1.1176+0.528 * 0.9985+0.404 * 0.9085+0.892 * 0.9973+0.115 * 1.0802
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.1144+4.679 * -0.0428-0.327 * 0.9563
=-2.61

* 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 $100 Mil.
Revenue was 1102.1 + 1045 + 1122 + 1201.8 = $4,471 Mil.
Gross Profit was 897.5 + 848.9 + 912.9 + 965.5 = $3,625 Mil.
Total Current Assets was $2,410 Mil.
Total Assets was $3,560 Mil.
Property, Plant and Equipment(Net PPE) was $373 Mil.
Depreciation, Depletion and Amortization(DDA) was $99 Mil.
Selling, General & Admin. Expense(SGA) was $1,978 Mil.
Total Current Liabilities was $941 Mil.
Long-Term Debt was $2,199 Mil.
Net Income was 85.2 + 99.4 + 87.7 + -22.9 = $249 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 175.5 + 117.4 + -118.1 + 226.9 = $402 Mil.
Accounts Receivable was $90 Mil.
Revenue was 1119.6 + 1098.4 + 1102.9 + 1162.3 = $4,483 Mil.
Gross Profit was 906.5 + 894 + 896 + 933 = $3,630 Mil.
Total Current Assets was $1,474 Mil.
Total Assets was $2,386 Mil.
Property, Plant and Equipment(Net PPE) was $339 Mil.
Depreciation, Depletion and Amortization(DDA) was $99 Mil.
Selling, General & Admin. Expense(SGA) was $1,780 Mil.
Total Current Liabilities was $1,208 Mil.
Long-Term Debt was $993 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)
=(100.2 / 4470.9) / (89.9 / 4483.2)
=0.02241159 / 0.02005264
=1.1176

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)
=(3629.5 / 4483.2) / (3624.8 / 4470.9)
=0.80957798 / 0.81075399
=0.9985

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 - (2409.5 + 373.3) / 3560.3) / (1 - (1474.1 + 338.6) / 2386.3)
=0.21838047 / 0.24037212
=0.9085

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
=4470.9 / 4483.2
=0.9973

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))
=(99 / (99 + 338.6)) / (98.9 / (98.9 + 373.3))
=0.226234 / 0.20944515
=1.0802

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)
=(1978.4 / 4470.9) / (1780.2 / 4483.2)
=0.44250598 / 0.39708244
=1.1144

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)
=((2199.2 + 940.6) / 3560.3) / ((992.8 + 1207.9) / 2386.3)
=0.88189198 / 0.92222269
=0.9563

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
=(249.4 - 0 - 401.7) / 3560.3
=-0.0428

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.

Herbalife Ltd has a M-score of -2.61 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.

Herbalife Ltd Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.9971.08411.11570.94580.82891.09880.72890.81110.92771.0014
GMI 1.00320.98761.02260.99020.99061.00331.00010.99820.99170.9986
AQI 0.95950.95580.96460.93960.88710.87230.71731.22120.91451.2232
SGI 1.13811.09940.98531.17621.26341.17881.18491.02760.90131.0043
DEPI 0.99471.03480.8370.93111.03071.15391.11741.03560.90411.0861
SGAI 0.98151.02320.50070.97510.95820.99441.09141.18940.99441.0974
LVGI 1.39350.95480.8850.89941.01931.29591.03491.52120.8950.8912
TATA -0.0744-0.0462-0.0713-0.0771-0.0653-0.0602-0.0992-0.0806-0.1159-0.0418
M-score -2.85-2.54-2.62-2.73-2.75-2.64-3.16-3.12-3.19-2.55

Herbalife Ltd Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 0.81110.75661.00841.0110.92771.10921.00420.96971.00141.1176
GMI 0.99820.99770.99960.99270.99170.99150.99130.99580.99860.9985
AQI 1.22121.2581.05981.01920.91450.95070.88440.96161.22320.9085
SGI 1.02760.96720.92210.88420.90130.93370.97111.00831.00430.9973
DEPI 1.03560.93880.89110.90280.90410.92811.04171.0811.08611.0802
SGAI 0.96130.90050.56520.25031.23031.23911.7693.21191.09741.1144
LVGI 1.52121.15070.93360.89310.8950.85980.91430.89780.89120.9563
TATA -0.0806-0.066-0.0973-0.0805-0.1159-0.1056-0.1481-0.0554-0.0418-0.0428
M-score -3.08-2.98-2.89-2.79-3.23-2.96-3.35-3.12-2.55-2.61
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