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GuruFocus has detected 2 Warning Signs with Valeant Pharmaceuticals International Inc $VRX.
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Valeant Pharmaceuticals International Inc (NYSE:VRX)
Beneish M-Score
-3.11 (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.

Valeant Pharmaceuticals International Inc has a M-score of -3.12 suggests that the company is not a manipulator.

VRX' s Beneish M-Score Range Over the Past 10 Years
Min: -3.73   Max: 2.36
Current: -3.11

-3.73
2.36

During the past 13 years, the highest Beneish M-Score of Valeant Pharmaceuticals International Inc was 2.36. The lowest was -3.73. And the median was -2.33.


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 Valeant Pharmaceuticals International 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 * 0.8812+0.528 * 1.0289+0.404 * 0.9997+0.892 * 0.8838+0.115 * 0.9657
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0234+4.679 * -0.0903-0.327 * 1.0465
=-3.12

* 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 $2,097 Mil.
Revenue was 2109 + 2402.6 + 2479.6 + 2420.2 = $9,411 Mil.
Gross Profit was 1513 + 1737.3 + 1821.6 + 1762.4 = $6,834 Mil.
Total Current Assets was $5,333 Mil.
Total Assets was $42,333 Mil.
Property, Plant and Equipment(Net PPE) was $1,328 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,809 Mil.
Selling, General & Admin. Expense(SGA) was $2,658 Mil.
Total Current Liabilities was $4,247 Mil.
Long-Term Debt was $28,198 Mil.
Net Income was 628 + -514.6 + -1218.4 + -302.3 = $-1,407 Mil.
Non Operating Income was -35 + -45.6 + -2.3 + 13.1 = $-70 Mil.
Cash Flow from Operations was 954 + 512.5 + 568.3 + 449.2 = $2,484 Mil.
Accounts Receivable was $2,693 Mil.
Revenue was 2372 + 2757.7 + 2786.8 + 2732.4 = $10,649 Mil.
Gross Profit was 1742 + 2028.2 + 2138.6 + 2047.3 = $7,956 Mil.
Total Current Assets was $6,234 Mil.
Total Assets was $49,020 Mil.
Property, Plant and Equipment(Net PPE) was $1,466 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,791 Mil.
Selling, General & Admin. Expense(SGA) was $2,939 Mil.
Total Current Liabilities was $4,597 Mil.
Long-Term Debt was $31,303 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)
=(2097 / 9411.4) / (2692.7 / 10648.9)
=0.22281488 / 0.2528618
=0.8812

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)
=(7956.1 / 10648.9) / (6834.3 / 9411.4)
=0.74712881 / 0.72617251
=1.0289

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 - (5333 + 1328) / 42333) / (1 - (6233.7 + 1465.5) / 49019.9)
=0.8426523 / 0.84293726
=0.9997

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
=9411.4 / 10648.9
=0.8838

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))
=(2791 / (2791 + 1465.5)) / (2809 / (2809 + 1328))
=0.65570304 / 0.67899444
=0.9657

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)
=(2658.4 / 9411.4) / (2939.2 / 10648.9)
=0.28246595 / 0.27600973
=1.0234

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)
=((28198 + 4247) / 42333) / ((31303.4 + 4597.4) / 49019.9)
=0.76642336 / 0.73237196
=1.0465

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
=(-1407.3 - -69.8 - 2484) / 42333
=-0.0903

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.

Valeant Pharmaceuticals International Inc has a M-score of -3.12 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.

Valeant Pharmaceuticals International Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.08310.90211.14951.70170.82961.14541.31420.87061.01681.0115
GMI 1.09630.99321.00751.11820.92050.98871.0770.92070.96671.0308
AQI 1.11531.29221.29081.1230.98340.94760.99690.97071.0820.9943
SGI 0.79380.89841.08351.43982.0551.43381.65771.42231.27310.926
DEPI 1.04740.72510.69471.24260.79550.87651.09741.12460.87390.92
SGAI 0.69171.53130.74761.27420.84630.92121.04131.09141.04681.124
LVGI 0.55850.9881.49961.29341.44061.20911.02170.96941.06561.0577
TATA -0.08490.0009-0.0984-0.0397-0.0376-0.0431-0.0658-0.0551-0.0491-0.1024
M-score -2.68-2.66-2.76-1.63-2.06-2.26-1.88-2.53-2.48-3.05

Valeant Pharmaceuticals International Inc Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 0.87060.9591.09861.16431.01681.0181.02360.99271.01150.8812
GMI 0.92070.92050.91240.92980.96670.98531.00411.02991.03081.0289
AQI 0.97070.6691.09511.04931.0821.54521.00761.01970.99430.9997
SGI 1.42231.28881.21881.23171.27311.25431.12591.01190.9260.8838
DEPI 1.12461.15051.07880.91540.87390.83610.84890.88940.920.9657
SGAI 1.09141.06341.04061.03191.04681.10651.13581.15051.1241.0234
LVGI 0.96941.06761.02041.03851.06560.97411.02661.04231.05771.0465
TATA -0.0551-0.0351-0.0324-0.0397-0.0491-0.0618-0.0697-0.0973-0.1024-0.0903
M-score -2.53-2.62-2.36-2.35-2.48-2.34-2.72-2.96-3.05-3.12
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