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GuruFocus has detected 3 Warning Signs with Time Warner Inc $TWX.
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Time Warner Inc (NYSE:TWX)
Beneish M-Score
-2.41 (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.

Time Warner Inc has a M-score of -2.41 suggests that the company is not a manipulator.

TWX' s Beneish M-Score Range Over the Past 10 Years
Min: -5.31   Max: 2.33
Current: -2.41

-5.31
2.33

During the past 13 years, the highest Beneish M-Score of Time Warner Inc was 2.33. The lowest was -5.31. And the median was -2.45.


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 Time Warner 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 * 1.0403+0.528 * 0.9856+0.404 * 0.9904+0.892 * 1.0511+0.115 * 0.9865
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0022+4.679 * -0.0027-0.327 * 0.9556
=-2.41

* 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 $8,540 Mil.
Revenue was 7735 + 7891 + 7167 + 6952 = $29,745 Mil.
Gross Profit was 3402 + 3233 + 3294 + 3112 = $13,041 Mil.
Total Current Assets was $12,908 Mil.
Total Assets was $65,649 Mil.
Property, Plant and Equipment(Net PPE) was $2,462 Mil.
Depreciation, Depletion and Amortization(DDA) was $667 Mil.
Selling, General & Admin. Expense(SGA) was $5,147 Mil.
Total Current Liabilities was $8,162 Mil.
Long-Term Debt was $22,402 Mil.
Net Income was 1424 + 293 + 1467 + 952 = $4,136 Mil.
Non Operating Income was 76 + -993 + -27 + -131 = $-1,075 Mil.
Cash Flow from Operations was 1461 + 1149 + 1568 + 1213 = $5,391 Mil.
Accounts Receivable was $7,810 Mil.
Revenue was 7308 + 7079 + 6564 + 7348 = $28,299 Mil.
Gross Profit was 3303 + 2727 + 3038 + 3160 = $12,228 Mil.
Total Current Assets was $11,792 Mil.
Total Assets was $63,254 Mil.
Property, Plant and Equipment(Net PPE) was $2,546 Mil.
Depreciation, Depletion and Amortization(DDA) was $678 Mil.
Selling, General & Admin. Expense(SGA) was $4,886 Mil.
Total Current Liabilities was $7,194 Mil.
Long-Term Debt was $23,622 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)
=(8540 / 29745) / (7810 / 28299)
=0.28710708 / 0.27598148
=1.0403

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)
=(12228 / 28299) / (13041 / 29745)
=0.43210007 / 0.43842663
=0.9856

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 - (12908 + 2462) / 65649) / (1 - (11792 + 2546) / 63254)
=0.7658761 / 0.77332659
=0.9904

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
=29745 / 28299
=1.0511

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))
=(678 / (678 + 2546)) / (667 / (667 + 2462))
=0.21029777 / 0.21316715
=0.9865

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)
=(5147 / 29745) / (4886 / 28299)
=0.17303749 / 0.17265628
=1.0022

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)
=((22402 + 8162) / 65649) / ((23622 + 7194) / 63254)
=0.46556688 / 0.48717868
=0.9556

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
=(4136 - -1075 - 5391) / 65649
=-0.0027

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.

Time Warner Inc has a M-score of -2.41 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.

Time Warner Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.13091.24241.18661.03071.00171.22060.92121.05040.93411.1258
GMI 1.05040.94010.99270.99551.00971.02960.96591.04690.98650.9639
AQI 0.97661.05980.89621.01490.99891.00521.02680.97641.01890.9924
SGI 1.06390.57050.95751.05911.07760.87411.07381.00611.02771.0427
DEPI 1.49530.3130.96243.34530.29214.10680.86720.86621.04110.9875
SGAI 0.82181.21530.94780.95250.97540.85521.02630.97260.90441.0185
LVGI 1.01450.81081.26061.00691.10811.01320.9851.15321.02570.9832
TATA -0.0286-0.2077-0.0328-0.0057-0.00460.00220.0080.00430.00370.0066
M-score -2.34-3.67-2.63-2.15-2.54-1.98-2.47-2.45-2.49-2.32

Time Warner Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.05041.01371.10051.0040.93410.99930.9881.09911.12581.0403
GMI 1.04691.03571.03760.97440.98650.96730.96270.99060.96390.9856
AQI 0.97641.01341.00521.01611.01891.02071.02270.99380.99240.9904
SGI 1.00611.02311.03691.0411.02771.02230.9880.9981.04271.0511
DEPI 0.86620.84251.01531.04281.04111.03751.00240.97440.98750.9865
SGAI 0.97261.0081.0010.96750.90440.93550.96410.97731.01851.0022
LVGI 1.15321.15651.08121.04081.02571.00790.98640.97830.98320.9556
TATA 0.00430.01250.0089-0.00040.00370.01050.00350.0040.0066-0.0027
M-score -2.45-2.43-2.32-2.45-2.49-2.41-2.48-2.37-2.32-2.41
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