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Honeywell International Inc. (HON) | 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

Honeywell International Inc., balance sheet computation of aggregate accruals

USD $ in millions

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    Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
  Operating Assets
Total assets 41,853  39,808  37,834  36,004  35,490 
Less: Cash and cash equivalents 4,634  3,698  2,650  2,801  2,065 
Operating assets 37,219  36,110  35,184  33,203  33,425 
  Operating Liabilities
Total liabilities 28,638  28,906  27,047  27,050  28,221 
Less: Short-term borrowings 76  60  67  45  56 
Less: Commercial paper 400  599  299  298  1,431 
Less: Current maturities of long-term debt 625  15  523  1,018  1,023 
Less: Long-term debt 6,395  6,881  5,755  6,246  5,865 
Operating liabilities 21,142  21,351  20,403  19,443  19,846 
   
Net operating assets1 16,077  14,759  14,781  13,760  13,579 
Balance-sheet-based aggregate accruals2 1,318  (22) 1,021  181   
  Balance-Sheet-Based Accruals Ratio, Comparison to Industry
Honeywell International Inc.3 8.55% -0.15% 7.15% 1.32%  
  Industry, Industrials 9.96% 7.71% -2.02% 6.17%  

2012 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 37,219 – 21,142 = 16,077

2 Balance-sheet-based aggregate accruals = Net operating assets 2012 – Net operating assets 2011
= 16,077 – 14,759 = 1,318

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,318 ÷ [(16,077 + 14,759) ÷ 2] = 8.55%

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, Honeywell International Inc. deteriorated earnings quality from 2011 to 2012.

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Cash-Flow-Statement-Based Accruals Ratio

Honeywell International Inc., cash flow statement computation of aggregate accruals

USD $ in millions

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    Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Net income attributable to Honeywell 2,926  2,067  2,022  2,153  2,792 
Less: Net cash provided by operating activities 3,517  2,833  4,203  3,946  3,791 
Less: Net cash used for investing activities (1,428) (611) (2,269) (1,133) (2,023)
Cash-flow-statement-based aggregate accruals 837  (155) 88  (660) 1,024 
  Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry
Honeywell International Inc.1 5.43% -1.05% 0.62% -4.83%  
  Industry, Industrials 8.30% 7.93% 2.55% -0.54%  

2012 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 837 ÷ [(16,077 + 14,759) ÷ 2] = 5.43%

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, Honeywell International Inc. deteriorated earnings quality from 2011 to 2012.

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