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Diageo PLC (DEO) | Aggregate Accruals

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Earnings can be decomposed into cash and accrual components. The accrual component (aggregate accruals) has been found to have less persistence than the cash component, and therefore (1) earnings with higher accrual component are less persistent than earnings with smaller accrual component, all else equal; and (2) the cash component of earnings should receive a higher weighting evaluating company performance.


Balance-Sheet-Based Accruals Ratio

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Diageo PLC, balance sheet computation of aggregate accruals

USD $ in millions, translated from GBP £

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    Jun 30, 2011 Jun 30, 2010 Jun 30, 2009 Jun 30, 2008 Jun 30, 2007 Jun 30, 2006
  Operating Assets
chart Total assets
chart Less: Cash and cash equivalents
chart Operating assets
  Operating Liabilities
chart Total liabilities
chart Less: Borrowings due within one year and bank overdrafts
chart Less: Borrowings due after one year
chart Operating liabilities
   
chart Net operating assets1
chart Balance-sheet-based aggregate accruals2  
  Balance-Sheet-Based Accruals Ratio, Comparison to Industry
chart Diageo PLC3 % % % % %  
  Industry, Consumer Goods % % % % %  

2011 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= – =

2 Balance-sheet-based aggregate accruals = Net operating assets 2011 – Net operating assets 2010
= – =

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] = %

Ratio Description The company
Balance-sheet-based accruals ratio Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets. Using the balance-sheet-based accruals ratio, Diageo PLC deteriorated earnings quality from 2010 to 2011.

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Cash-Flow-Statement-Based Accruals Ratio

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Diageo PLC, cash flow statement computation of aggregate accruals

USD $ in millions, translated from GBP £

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    Jun 30, 2011 Jun 30, 2010 Jun 30, 2009 Jun 30, 2008 Jun 30, 2007 Jun 30, 2006
chart Profit for the year attributable to equity shareholders of the parent company
chart Less: Net cash from operating activities
chart Less: Net cash outflow from investing activities
chart Cash-flow-statement-based aggregate accruals
  Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry
chart Diageo PLC1 % % % % %  
  Industry, Consumer Goods % % % % %  

2011 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] = %

Ratio Description The company
Cash-flow-statement-based accruals ratio Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets. Using the cash-flow-statement-based accruals ratio, Diageo PLC improved earnings quality from 2010 to 2011.

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May 23, 2012

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