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Procter & Gamble Co. (PG) | 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

Procter & Gamble Co., balance sheet computation of aggregate accruals

USD $ in millions

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    Jun 30, 2012 Jun 30, 2011 Jun 30, 2010 Jun 30, 2009 Jun 30, 2008
  Operating Assets
Total assets 132,244  138,354  128,172  134,833  143,992 
Less: Cash and cash equivalents 4,436  2,768  2,879  4,781  3,313 
Less: Investment securities – – – – 228 
Operating assets 127,808  135,586  125,293  130,052  140,451 
  Operating Liabilities
Total liabilities 68,209  70,353  66,733  71,451  74,498 
Less: Debt due within one year 8,698  9,981  8,472  16,320  13,084 
Less: Long-term debt 21,080  22,033  21,360  20,652  23,581 
Operating liabilities 38,431  38,339  36,901  34,479  37,833 
   
Net operating assets1 89,377  97,247  88,392  95,573  102,618 
Balance-sheet-based aggregate accruals2 (7,870) 8,855  (7,181) (7,045)  
  Balance-Sheet-Based Accruals Ratio, Comparison to Industry
Procter & Gamble Co.3 -8.43% 9.54% -7.81% -7.11%  
  Industry, Consumer Goods 1.16% 9.24% 5.39% 0.42%  

2012 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 127,808 – 38,431 = 89,377

2 Balance-sheet-based aggregate accruals = Net operating assets 2012 – Net operating assets 2011
= 89,377 – 97,247 = -7,870

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -7,870 ÷ [(89,377 + 97,247) ÷ 2] = -8.43%

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, Procter & Gamble Co. improved earnings quality from 2011 to 2012.

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Cash-Flow-Statement-Based Accruals Ratio

Procter & Gamble Co., cash flow statement computation of aggregate accruals

USD $ in millions

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    Jun 30, 2012 Jun 30, 2011 Jun 30, 2010 Jun 30, 2009 Jun 30, 2008
Net earnings attributable to Procter & Gamble 10,756  11,797  12,736  13,436  12,075 
Less: Operating activities 13,284  13,330  16,131  14,919  15,814 
Less: Investing activities (1,093) (3,482) (597) (2,353) (2,549)
Cash-flow-statement-based aggregate accruals (1,435) 1,949  (2,798) 870  (1,190)
  Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry
Procter & Gamble Co.1 -1.54% 2.10% -3.04% 0.88%  
  Industry, Consumer Goods 2.33% 3.40% 1.26% 3.09%  

2012 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,435 ÷ [(89,377 + 97,247) ÷ 2] = -1.54%

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, Procter & Gamble Co. improved earnings quality from 2011 to 2012.

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