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Johnson & Johnson (JNJ) | 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

Johnson & Johnson, balance sheet computation of aggregate accruals

USD $ in millions

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    Dec 30, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
  Operating Assets
Total assets 121,347  113,644  102,908  94,682  84,912 
Less: Cash and cash equivalents 14,911  24,542  19,355  15,810  10,768 
Less: Marketable securities 6,178  7,719  8,303  3,615  2,041 
Operating assets 100,258  81,383  75,250  75,257  72,103 
  Operating Liabilities
Total liabilities 56,521  56,564  46,329  44,094  42,401 
Less: Loans and notes payable 4,676  6,658  7,617  6,318  3,732 
Less: Long-term debt 11,489  12,969  9,156  8,223  8,120 
Operating liabilities 40,356  36,937  29,556  29,553  30,549 
   
Net operating assets1 59,902  44,446  45,694  45,704  41,554 
Balance-sheet-based aggregate accruals2 15,456  (1,248) (10) 4,150   
  Balance-Sheet-Based Accruals Ratio, Comparison to Industry
Johnson & Johnson3 29.62% -2.77% -0.02% 9.51%  
  Industry, Health Care 6.71% 0.12% 3.35% 30.44%  

2012 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 100,258 – 40,356 = 59,902

2 Balance-sheet-based aggregate accruals = Net operating assets 2012 – Net operating assets 2011
= 59,902 – 44,446 = 15,456

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 15,456 ÷ [(59,902 + 44,446) ÷ 2] = 29.62%

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, Johnson & Johnson deteriorated earnings quality from 2011 to 2012.

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Cash-Flow-Statement-Based Accruals Ratio

Johnson & Johnson, cash flow statement computation of aggregate accruals

USD $ in millions

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    Dec 30, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Net earnings attributable to Johnson & Johnson 10,853  9,672  13,334  12,266  12,949 
Less: Net cash flows from operating activities 15,396  14,298  16,385  16,571  14,972 
Less: Net cash used by investing activities (4,510) (4,612) (7,854) (7,598) (4,187)
Cash-flow-statement-based aggregate accruals (33) (14) 4,803  3,293  2,164 
  Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry
Johnson & Johnson1 -0.06% -0.03% 10.51% 7.55%  
  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 × -33 ÷ [(59,902 + 44,446) ÷ 2] = -0.06%

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, Johnson & Johnson deteriorated earnings quality from 2011 to 2012.

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