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GuruFocus has detected 4 Warning Signs with Netflix Inc $NFLX.
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Netflix Inc (NAS:NFLX)
Beneish M-Score
-1.50 (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.

Netflix Inc has a M-score of -1.50 signals that the company is a manipulator.

NFLX' s Beneish M-Score Range Over the Past 10 Years
Min: -4.46   Max: -1.13
Current: -1.5

-4.46
-1.13

During the past 13 years, the highest Beneish M-Score of Netflix Inc was -1.13. The lowest was -4.46. And the median was -2.71.


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 Netflix 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+0.528 * 0.9155+0.404 * 1.1041+0.892 * 1.3364+0.115 * 1.6194
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0221+4.679 * 0.1368-0.327 * 1.088
=-1.50

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

This Year (Jun17) TTM:Last Year (Jun16) TTM:
Accounts Receivable was $0 Mil.
Revenue was 2785.464 + 2636.635 + 2477.541 + 2290.188 = $10,190 Mil.
Gross Profit was 883.156 + 979.611 + 823.122 + 757.344 = $3,443 Mil.
Total Current Assets was $6,701 Mil.
Total Assets was $16,517 Mil.
Property, Plant and Equipment(Net PPE) was $310 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General & Admin. Expense(SGA) was $1,833 Mil.
Total Current Liabilities was $5,123 Mil.
Long-Term Debt was $4,837 Mil.
Net Income was 65.6 + 178.222 + 66.748 + 51.517 = $362 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -534.528 + -343.856 + -557.16 + -461.941 = $-1,897 Mil.
Accounts Receivable was $0 Mil.
Revenue was 2105.204 + 1957.736 + 1823.333 + 1738.355 = $7,625 Mil.
Gross Profit was 632.106 + 588.196 + 573.968 + 564.397 = $2,359 Mil.
Total Current Assets was $5,387 Mil.
Total Assets was $11,594 Mil.
Property, Plant and Equipment(Net PPE) was $163 Mil.
Depreciation, Depletion and Amortization(DDA) was $60 Mil.
Selling, General & Admin. Expense(SGA) was $1,342 Mil.
Total Current Liabilities was $4,052 Mil.
Long-Term Debt was $2,373 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)
=(0 / 10189.828) / (0 / 7624.628)
=0 / 0
=1

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)
=(2358.667 / 7624.628) / (3443.233 / 10189.828)
=0.30934847 / 0.33790884
=0.9155

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 - (6700.785 + 309.831) / 16517.223) / (1 - (5386.918 + 162.864) / 11593.507)
=0.57555722 / 0.52130257
=1.1041

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
=10189.828 / 7624.628
=1.3364

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))
=(60.464 / (60.464 + 162.864)) / (62.199 / (62.199 + 309.831))
=0.27074079 / 0.16718813
=1.6194

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)
=(1833.033 / 10189.828) / (1341.88 / 7624.628)
=0.17988851 / 0.17599285
=1.0221

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)
=((4836.502 + 5122.945) / 16517.223) / ((2373.085 + 4051.837) / 11593.507)
=0.60297345 / 0.55418279
=1.088

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
=(362.087 - 0 - -1897.485) / 16517.223
=0.1368

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.

Netflix Inc has a M-score of -1.50 signals that the company is likely to 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.

Netflix Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1111111111
GMI 1.06661.04430.94110.95031.02451.37040.92270.90310.98611.0176
AQI 1.35280.77040.94341.09211.63041.11991.02021.02661.07011.2439
SGI 1.20941.13221.22391.29481.48181.12631.2121.25831.23161.3026
DEPI 0.9931.12812.94260.98070.94110.26173.49181.00321.00271.4144
SGAI 0.85570.81330.94710.95730.99750.96940.92781.07171.14020.9781
LVGI 1.14671.13271.65390.8780.88340.89291.03721.02771.14771.0118
TATA -0.3291-0.3266-0.3078-0.1177-0.0298-0.00460.00730.03550.08550.1222
M-score -3.68-3.96-3.76-2.71-1.89-2.19-2.00-2.14-1.92-1.48

Netflix Inc Quarterly Data

Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17Jun17
DSRI 1111111111
GMI 0.91790.94140.97310.98611.02971.04461.0371.01760.93540.9155
AQI 0.99981.01131.0131.07011.28121.29621.34231.24391.191.1041
SGI 1.25691.24951.23981.23161.23361.24751.26951.30261.32741.3364
DEPI 0.40510.57720.67691.00274.98254.30114.7071.41441.56321.6194
SGAI 1.1351.23341.23111.14021.070.99380.97530.97810.99971.0221
LVGI 1.1191.13821.1381.14770.95660.9520.94911.01181.02951.088
TATA 0.04160.05980.07120.08550.08680.08940.10730.12220.13420.1368
M-score -2.23-2.14-2.06-1.92-1.28-1.30-1.13-1.48-1.46-1.50
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