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Carvana: A Likely Earnings Manipulator

Carvana Co. (

CVNA, Financial) is a U.S. e-commerce company that sells cars. It operates a fully integrated platform that includes vehicle sales, delivery and financing. I have reason to believe the company is manipulating its earnings, and here’s why.

Beneish M-score

The Beneish M-score is an algorithm that looks at eight variables to determine the probability that a company manipulates its earnings. A good score reads below -1.78, and Carvana’s is at the 0.74 level, which is exceptionally concerning.


Variables such as days until receivables, asset quality, sales growth and its leverage ratio are all of the concern as they have a time-relative benchmark reading of above 1.00.


Carvana’s days to receivables have become exceptionally stretched during 2021, which is a concern considering U.S. GAAP accounting laws only require a payment contract to be “most likely” fulfilled for sales and receivables to be recognized.

Furthermore, the company is leveraged up by 422.34% with an interest coverage ratio of 0.06, barely covering its debt burden.

Lastly, there are fragilities in the company’s sales growth due to rising vehicle inflation and a drawdown in the originally anticipated gross domestic product growth rates for the U.S.; this could cause havoc considering the company’s already reporting its earnings releases aggressively.


Carvana has a substantial negative operating cash flow (-$1,572.4 million), but yet it reports a lean operating loss of only $82.4 million. This suggests that the company has recognized 1,917% as many accruals as cash that has arrived, which beckons the question of whether it’s realistic to fill that gap.

Even if one could trust its financial statements, how does it plan to make up those accruals and $154 million in accounts payable?

Finally, the stock is significantly overvalued to its sector even with its aggressive accounting techniques. Carvana stock’s price-sales and enterprise value-sales are trading above industry benchmarks by 94.07% and 102.34%, respectively. This suggests Carvana is a fragile stock and, if it had to release a poor earnings report, the stock would most likely capitulate.

Final word

The Beneish M-score indicates that Carvana is an earnings manipulator, and the amount of accruals it has confirms the suspicion. I’d be cautious if I were a potential investor. Wall Street bulls have been wrong about many stocks, and Carvana could be one of them.

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