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GuruFocus has detected 3 Warning Signs with Westlake Chemical Corp $WLK.
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Westlake Chemical Corp (NYSE:WLK)
Beneish M-Score
-1.30 (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.

Westlake Chemical Corp has a M-score of -1.30 signals that the company is a manipulator.

WLK' s Beneish M-Score Range Over the Past 10 Years
Min: -3.22   Max: 4.16
Current: -1.3

-3.22
4.16

During the past 13 years, the highest Beneish M-Score of Westlake Chemical Corp was 4.16. The lowest was -3.22. And the median was -2.51.


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 Westlake Chemical 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 * 1.4823+0.528 * 1.4758+0.404 * 2.658+0.892 * 1.394+0.115 * 1.1134
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.1745+4.679 * -0.0468-0.327 * 1.9186
=-1.30

* 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 $933 Mil.
Revenue was 1942.616 + 1735.18 + 1279.028 + 1086.061 = $6,043 Mil.
Gross Profit was 367.143 + 281.478 + 202.133 + 241.366 = $1,092 Mil.
Total Current Assets was $2,251 Mil.
Total Assets was $10,725 Mil.
Property, Plant and Equipment(Net PPE) was $6,393 Mil.
Depreciation, Depletion and Amortization(DDA) was $462 Mil.
Selling, General & Admin. Expense(SGA) was $366 Mil.
Total Current Liabilities was $943 Mil.
Long-Term Debt was $3,602 Mil.
Net Income was 138.19 + 98.945 + 65.662 + 111.124 = $414 Mil.
Non Operating Income was 5.071 + 2.785 + 40.728 + 5.097 = $54 Mil.
Cash Flow from Operations was 157.394 + 289.692 + 174.268 + 240.957 = $862 Mil.
Accounts Receivable was $451 Mil.
Revenue was 975.187 + 986.766 + 1188.037 + 1185.002 = $4,335 Mil.
Gross Profit was 255.585 + 236.188 + 311.276 + 353.181 = $1,156 Mil.
Total Current Assets was $2,192 Mil.
Total Assets was $5,724 Mil.
Property, Plant and Equipment(Net PPE) was $3,115 Mil.
Depreciation, Depletion and Amortization(DDA) was $253 Mil.
Selling, General & Admin. Expense(SGA) was $223 Mil.
Total Current Liabilities was $506 Mil.
Long-Term Debt was $758 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)
=(932.699 / 6042.885) / (451.376 / 4334.992)
=0.15434664 / 0.10412384
=1.4823

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)
=(1156.23 / 4334.992) / (1092.12 / 6042.885)
=0.26672022 / 0.18072824
=1.4758

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 - (2251.288 + 6392.745) / 10724.83) / (1 - (2191.734 + 3114.821) / 5724.401)
=0.19401678 / 0.07299384
=2.658

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
=6042.885 / 4334.992
=1.394

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))
=(252.83 / (252.83 + 3114.821)) / (462.221 / (462.221 + 6392.745))
=0.07507607 / 0.06742863
=1.1134

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)
=(365.778 / 6042.885) / (223.407 / 4334.992)
=0.06053036 / 0.05153574
=1.1745

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)
=((3601.642 + 943.431) / 10724.83) / ((758.3 + 506.161) / 5724.401)
=0.42378975 / 0.22088966
=1.9186

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
=(413.921 - 53.681 - 862.311) / 10724.83
=-0.0468

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.

Westlake Chemical Corp has a M-score of -1.30 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.

Westlake Chemical Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.27850.59171.55320.7830.91861.00661.00211.12270.79891.6777
GMI 1.87694.5260.22390.55130.98540.74830.70440.9821.12361.3744
AQI 1.82990.93010.84840.96690.81840.5181.80511.07070.82032.7035
SGI 1.28491.15670.62991.36381.14130.98651.05281.17451.01091.1371
DEPI 0.88910.98470.91410.94361.02831.10321.24320.99970.92951.3611
SGAI 0.9040.88451.41050.87050.94251.09861.15581.05731.21331.1528
LVGI 1.32630.85211.03751.12350.93840.98550.84490.86710.92151.9412
TATA 0.0205-0.0963-0.0767-0.022-0.0314-0.0702-0.036-0.0671-0.0837-0.0446
M-score -1.18-1.27-3.22-2.73-2.62-3.14-2.38-2.47-3.07-1.35

Westlake Chemical Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
DSRI 1.12271.05221.13140.80710.79890.96020.94611.95451.67771.4823
GMI 0.9821.01071.0291.03891.12361.09771.18111.31591.37441.4758
AQI 1.07071.02750.9530.71890.82030.88731.17392.85882.70352.658
SGI 1.17451.1451.17471.09011.01090.96520.90560.93811.13711.394
DEPI 0.99970.97620.97860.86010.92950.9911.01371.75371.36111.1134
SGAI 1.05731.14071.20811.18651.21331.1571.14641.56811.15281.1745
LVGI 0.86710.87240.91120.90150.92150.940.97011.90661.94121.9186
TATA -0.0671-0.0669-0.0651-0.0729-0.0837-0.0736-0.0836-0.0386-0.0446-0.0468
M-score -2.47-2.58-2.52-3.03-3.07-2.89-2.85-1.23-1.35-1.30
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