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WCOM · WorldCom Inc.

CIK 723527 · SIC 4813 Telephone Communications · Latest FY 2001
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-0.85
Beneish M
0.90
Altman Z
3.10
Dechow F
2/9
Piotroski
5/6
Montier C

All metrics — FY2001 · click any row to see the formula

Beneish M-Score-0.85
Composite earnings-manipulation index built from 8 component ratios.
M = −4.84 + 0.92·DSRI + 0.528·GMI + 0.404·AQI + 0.892·SGI + 0.115·DEPI − 0.172·SGAI + 4.679·TATA − 0.327·LVGI
Plugged in:
M = −4.84 + 0.92 × 1.650 = +1.518 + 0.528 × 1.400 = +0.739 + 0.404 × 1.320 = +0.533 + 0.892 × 1.100 = +0.981 + 0.115 × 1.550 = +0.178 − 0.172 × 1.250 = -0.215 + 4.679 × 0.140 = +0.655 − 0.327 × 1.300 = -0.425 = -0.85
Threshold: >-1.78 flags possible manipulation. >-1.49 is the original Beneish (1999) threshold.
Altman Z-Score0.90
Bankruptcy / financial-distress index. Distress correlates with stronger incentive to manage earnings.
Z = 1.2·X1 + 1.4·X2 + 3.3·X3 + 0.6·X4 + 1.0·X5 X1 = (Current Assets − Current Liabilities) / Total Assets [working capital] X2 = Retained Earnings / Total Assets [accumulated profitability] X3 = EBIT / Total Assets [operating efficiency] X4 = Market Cap / Total Liabilities [solvency] X5 = Revenue / Total Assets [asset turnover]
Threshold: Z < 1.81 = distress zone, 1.81–2.99 = grey zone, >2.99 = safe.
Note: this build uses Equity/Assets as a proxy for X2 (no retained-earnings concept pulled) and 0 for X4 (no price feed wired in yet), so absolute Z values are biased; rankings are still meaningful.
Dechow F-Score3.10
Probability of a material misstatement, trained on SEC Accounting and Auditing Enforcement Releases (Dechow et al. 2011, Model 1).
predicted = −7.893 + 0.790·RSST_accruals + 2.518·ΔReceivables + 1.191·ΔInventory + 1.979·%SoftAssets + 0.171·%ΔRevenue − 0.932·ΔROA prob = 1 / (1 + exp(−predicted)) F-Score = prob / 0.0037 (unconditional rate of misstatement)
Threshold: F > 1 = above average risk; > 2.45 = high risk; > 4.62 = very high risk.
Piotroski F-Score2 / 9
Sums 9 binary indicators of fundamental health. Higher is better.
+1 if Net Income > 0 +1 if CFO > 0 +1 if ΔROA > 0 +1 if CFO > Net Income (accrual quality) +1 if Δ(LongTermDebt/TA) < 0 +1 if Δ(CurrentRatio) > 0 +1 if shares outstanding did not rise +1 if Δ(GrossMargin) > 0 +1 if Δ(AssetTurnover) > 0
Threshold: 0–3 = weak, 4–6 = average, 7–9 = strong.
Montier C-Score5 / 6
Six binary fraud screens (Montier 2008). Higher = more flags fired simultaneously.
+1 if Net Income > CFO (earnings exceed cash) +1 if Days Sales Outstanding rising +1 if Days Sales of Inventory rising +1 if (Other current assets / TA) rising +1 if Depreciation/PP&E declining +1 if Total assets growing >10% YoY (acquisition-fueled growth)
Threshold: ≥4 of 6 is the warning band.
DSRI · Days Sales Receivable Index1.650
Year-over-year change in (Receivables / Sales). Rising means collections slowing — a classic revenue-recognition red flag.
DSRI = (AR_t / Sales_t) ÷ (AR_t-1 / Sales_t-1)
Threshold: >1.31 in Beneish's original sample.
GMI · Gross Margin Index1.400
Inverse-direction: prior gross margin divided by current. >1 means margins deteriorated.
GMI = ((Sales_t-1 − COGS_t-1) / Sales_t-1) ÷ ((Sales_t − COGS_t) / Sales_t)
Threshold: >1.20 raises pressure to manage earnings.
AQI · Asset Quality Index1.320
Tracks change in soft (non-current, non-PP&E) assets as a share of total. Rising = intangibles, deferred costs, or capitalized expenses growing fast.
AQI = (1 − (CurrentAssets_t + PPE_t) / TA_t) ÷ (1 − (CurrentAssets_t-1 + PPE_t-1) / TA_t-1)
Threshold: >1.20.
SGI · Sales Growth Index1.100
Simply revenue growth. Aggressive growth alone isn't fraud, but pairs with other flags.
SGI = Sales_t / Sales_t-1
Watch above 1.50 in combination with DSRI/TATA.
DEPI · Depreciation Index1.550
Prior depreciation rate divided by current. >1 means depreciation slowed — useful lives may have been extended to suppress expense.
DEPI = (Dep_t-1 / (Dep_t-1 + PPE_t-1)) ÷ (Dep_t / (Dep_t + PPE_t))
Threshold: >1.10.
SGAI · SG&A Index1.250
Change in SG&A as a fraction of sales.
SGAI = (SGA_t / Sales_t) ÷ (SGA_t-1 / Sales_t-1)
Sharp moves either direction can signal one-time charges or aggressive capitalization.
LVGI · Leverage Index1.300
Change in (Total Liabilities / Total Assets). Rising leverage increases covenant pressure.
LVGI = (TL_t / TA_t) ÷ (TL_t-1 / TA_t-1)
Threshold: >1.20 in combination with weak earnings quality.
TATA · Total Accruals to Total Assets0.140
Net income that didn't show up as cash, scaled by assets. The Beneish formulation.
TATA = (NetIncome_t − CFO_t) / TotalAssets_t
Threshold: >0.03 is the classic Sloan accruals red flag; the higher and more sustained, the worse.
Sloan accruals ratio0.350
The original Sloan (1996) ratio: same numerator, scaled by *average* assets.
Accruals ratio = (NI_t − CFO_t) / ((TA_t + TA_t-1) / 2)
High-accrual firms historically underperform low-accrual firms by 10%+ annually.
CFO − Net Income gap-0.320
Operating cash flow minus net income, scaled by |NI|. Strongly negative = NI > CFO, which is the highest-conviction earnings-quality red flag.
gap = (CFO_t − NI_t) / (|NI_t| + 1)
Threshold: < −0.30.
Revenue − A/R growth gap-0.250
Revenue YoY growth minus receivables YoY growth, in decimal points. Negative = receivables outpacing sales.
gap = (Rev_t − Rev_t-1)/Rev_t-1 − (AR_t − AR_t-1)/AR_t-1
Threshold: < −0.10. Suggests bill-and-hold, channel stuffing, or collection deterioration.
Revenue − Inventory growth gap-0.150
Revenue YoY growth minus inventory YoY growth.
gap = (Rev_t − Rev_t-1)/Rev_t-1 − (Inv_t − Inv_t-1)/Inv_t-1
Threshold: < −0.10. Inventory build outpacing demand → future write-down risk.
Goodwill / Total Assets0.480
Share of the balance sheet attributable to past acquisition premiums.
GW/TA = Goodwill_t / TotalAssets_t
Threshold: >0.40 = acquisition-heavy; impairment risk is elevated when cash flow softens.

Composite scores over time

Earnings quality signals

Triggered red flags (16)

SeverityCodeHeadlineDetail
high M_SCORE Beneish M-Score -0.85 exceeds -1.78 Composite earnings-manipulation signal is in the warning zone.
high Z_SCORE Altman Z-Score 0.90 indicates distress Distress correlates with stronger incentive to manage earnings.
high F_SCORE Dechow F-Score 3.10 (>2.45) AAER-trained probability of misstatement is elevated.
medium PIOTROSKI Piotroski F-Score 2/9 Weak fundamental health: profitability, leverage, or efficiency deteriorating.
high MONTIER Montier C-Score 5/6 Multiple binary fraud screens triggered simultaneously.
medium DSRI Days-Sales-Receivable index 1.65 Receivables growing faster than sales — revenue-recognition risk or channel stuffing.
medium GMI Gross Margin Index 1.40 Margins deteriorated; pressure to manage earnings rises.
medium AQI Asset Quality Index 1.32 Soft assets (intangibles, deferrals) growing faster than hard assets.
medium DEPI Depreciation Index 1.55 Useful lives may have been extended to suppress depreciation expense.
low LVGI Leverage Index 1.30 Leverage rising — covenant pressure can incentivize earnings management.
high TATA Total Accruals / Total Assets 0.140 Earnings far above operating cash flow; classic Sloan accruals red flag.
medium ACCRUALS Accruals ratio 0.35 High-accrual firms historically underperform — quality of earnings concern.
high CFO_NI_GAP CFO − NI gap -32% Net income materially exceeds operating cash flow.
medium REV_AR Revenue grew -25pp slower than receivables Sales not converting to cash — bill-and-hold or extended terms suspected.
medium REV_INV Inventory growing faster than revenue (-15pp) Possible obsolescence or future write-down risk.
low GOODWILL Goodwill is 48% of total assets Acquisition-heavy balance sheet; impairment risk elevated.

Rule-based narrative

WorldCom Inc. (WCOM) FY2001 — 16 flags (6 high, 8 medium, 2 low).

**Revenue inflation pattern**: receivables outpacing sales while accruals are high and operating cash flow lags reported earnings. Consistent with channel stuffing, bill-and-hold sales, or premature revenue recognition.

**Inventory build with margin compression**: stockpiling combined with falling gross margins suggests demand softness — elevated risk of future write-downs and earnings reset.

**Soft-asset balance sheet**: intangibles and goodwill dominate assets. Watch for impairment charges, especially if cash flow weakens further.

**Capitalization aggressive**: depreciation slowing relative to PP&E base while accruals run hot — useful-life extensions may be propping up reported earnings.

**Distress + manipulation signal**: financial distress amplifies management incentive to massage results. Treat reported earnings with skepticism.

Triggered findings:
- [HIGH] Beneish M-Score -0.85 exceeds -1.78 — Composite earnings-manipulation signal is in the warning zone.
- [HIGH] Altman Z-Score 0.90 indicates distress — Distress correlates with stronger incentive to manage earnings.
- [HIGH] Dechow F-Score 3.10 (>2.45) — AAER-trained probability of misstatement is elevated.
- [MEDIUM] Piotroski F-Score 2/9 — Weak fundamental health: profitability, leverage, or efficiency deteriorating.
- [HIGH] Montier C-Score 5/6 — Multiple binary fraud screens triggered simultaneously.
- [MEDIUM] Days-Sales-Receivable index 1.65 — Receivables growing faster than sales — revenue-recognition risk or channel stuffing.
- [MEDIUM] Gross Margin Index 1.40 — Margins deteriorated; pressure to manage earnings rises.
- [MEDIUM] Asset Quality Index 1.32 — Soft assets (intangibles, deferrals) growing faster than hard assets.
- [MEDIUM] Depreciation Index 1.55 — Useful lives may have been extended to suppress depreciation expense.
- [LOW] Leverage Index 1.30 — Leverage rising — covenant pressure can incentivize earnings management.
- [HIGH] Total Accruals / Total Assets 0.140 — Earnings far above operating cash flow; classic Sloan accruals red flag.
- [MEDIUM] Accruals ratio 0.35 — High-accrual firms historically underperform — quality of earnings concern.
- [HIGH] CFO − NI gap -32% — Net income materially exceeds operating cash flow.
- [MEDIUM] Revenue grew -25pp slower than receivables — Sales not converting to cash — bill-and-hold or extended terms suspected.
- [MEDIUM] Inventory growing faster than revenue (-15pp) — Possible obsolescence or future write-down risk.
- [LOW] Goodwill is 48% of total assets — Acquisition-heavy balance sheet; impairment risk elevated.

Claude analysis

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