Eli Lilly & Co. (LLY) | Aggregate Accruals

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

Eli Lilly & Co., balance sheet computation of aggregate accruals

USD $ in thousands

	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008
Operating Assets
Total assets	34,398,900	33,659,800	31,001,400	27,460,900	29,212,600
Less: Cash and cash equivalents	4,018,800	5,922,500	5,993,200	4,462,900	5,496,700
Less: Short-term investments	1,665,500	974,600	733,800	34,700	429,400
Operating assets	28,714,600	26,762,700	24,274,400	22,963,300	23,286,500
Operating Liabilities
Total liabilities	19,625,000	20,124,200	18,588,600	17,935,600	22,474,900
Less: Short-term borrowings and current maturities of long-term debt	11,900	1,522,300	156,000	27,400	5,846,300
Less: Long-term debt, excluding current maturities	5,519,400	5,464,700	6,770,500	6,634,700	4,615,700
Operating liabilities	14,093,700	13,137,200	11,662,100	11,273,500	12,012,900

Net operating assets¹	14,620,900	13,625,500	12,612,300	11,689,800	11,273,600
Balance-sheet-based aggregate accruals²	995,400	1,013,200	922,500	416,200
Balance-Sheet-Based Accruals Ratio, Comparison to Industry
Eli Lilly & Co.³	7.05%	7.72%	7.59%	3.62%
Industry, Health Care	6.71%	0.12%	3.35%	30.44%

2012 Calculations

¹ Net operating assets = Operating assets – Operating liabilities
= 28,714,600 – 14,093,700 = 14,620,900

² Balance-sheet-based aggregate accruals = Net operating assets ₂₀₁₂ – Net operating assets ₂₀₁₁
= 14,620,900 – 13,625,500 = 995,400

³ Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 995,400 ÷ [(14,620,900 + 13,625,500) ÷ 2] = 7.05%

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, Eli Lilly & Co. improved earnings quality from 2011 to 2012.

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Cash-Flow-Statement-Based Accruals Ratio

Eli Lilly & Co., cash flow statement computation of aggregate accruals

USD $ in thousands

	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008
Net income (loss)	4,088,600	4,347,700	5,069,500	4,328,800	(2,071,900)
Less: Net cash provided by operating activities	5,304,800	7,234,500	6,856,800	4,335,500	7,295,600
Less: Net cash provided by (used for) investing activities	(2,832,800)	(4,824,400)	(3,159,800)	142,800	(7,268,800)
Cash-flow-statement-based aggregate accruals	1,616,600	1,937,600	1,372,500	(149,500)	(2,098,700)
Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry
Eli Lilly & Co.¹	11.45%	14.77%	11.30%	-1.30%
Industry, Health Care	2.96%	0.05%	3.91%	14.33%

2012 Calculations

¹ Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,616,600 ÷ [(14,620,900 + 13,625,500) ÷ 2] = 11.45%

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, Eli Lilly & Co. improved earnings quality from 2011 to 2012.

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