Microsoft Excel LibreOffice Calc

Amazon.com Inc. (AMZN)


Financial Reporting Quality: Aggregate Accruals

Difficulty: Advanced

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

Amazon.com Inc., balance sheet computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Operating Assets
Total assets 162,648  131,310  83,402  65,444  54,505 
Less: Cash and cash equivalents 31,750  20,522  19,334  15,890  14,557 
Less: Marketable securities 9,500  10,464  6,647  3,918  2,859 
Operating assets 121,398  100,324  57,421  45,636  37,089 
Operating Liabilities
Total liabilities 119,099  103,601  64,117  52,060  43,764 
Less: Current portion of long-term debt 1,371  100  1,056  238  1,520 
Less: Current portion of capital lease obligation 7,720  5,839  3,997  3,027  2,013 
Less: Current portion of finance lease obligations 411  282  144  99  67 
Less: Long-term debt, excluding current portion 23,495  24,743  7,694  8,235  8,265 
Less: Long-term capital lease obligations, excluding current portion 9,650  8,438  5,080  4,212  3,026 
Less: Long-term finance lease obligations, excluding current portion 6,642  4,745  2,439  1,736  1,198 
Operating liabilities 69,810  59,454  43,707  34,513  27,675 
Net operating assets1 51,588  40,870  13,714  11,123  9,414 
Balance-sheet-based aggregate accruals2 10,718  27,156  2,591  1,709 
Ratio
Balance-sheet-based accruals ratio3 23.18% 99.50% 20.86% 16.64%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
Costco Wholesale Corp. 3.79% -6.51% 18.80% 2.66% 3.67%
eBay Inc. -14.19% -1.10% 52.38% -82.82%
Home Depot Inc. -2.02% -0.07% 2.47% -2.08%
Lowe’s Cos. Inc. 3.22% 9.18% -5.72% -4.96%
Netflix Inc. 47.69% 50.97% 61.45% 66.11%
Target Corp. -2.57% -2.24% -12.59% -17.57%
TJX Cos. Inc. 23.01% -6.47% 11.27% 1.69%
Walmart Inc. 0.79% -4.36% -1.78% -3.86%
Balance-Sheet-Based Accruals Ratio, Sector
General Retailers 5.74% 9.97% 2.82% -7.62%
Balance-Sheet-Based Accruals Ratio, Industry
Consumer Services 15.50% 7.81% 15.63% 7.23%

Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 121,39869,810 = 51,588

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 51,58840,870 = 10,718

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 10,718 ÷ [(51,588 + 40,870) ÷ 2] = 23.18%

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, Amazon.com Inc. improved earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

Amazon.com Inc., cash flow statement computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income (loss) 10,073  3,033  2,371  596  (241)
Less: Net cash provided by operating activities 30,723  18,434  16,443  11,920  6,842 
Less: Net cash used in investing activities (12,369) (27,819) (9,876) (6,450) (5,065)
Cash-flow-statement-based aggregate accruals (8,281) 12,418  (4,196) (4,874) (2,018)
Ratio
Cash-flow-statement-based accruals ratio1 -17.91% 45.50% -33.79% -47.47%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
Costco Wholesale Corp. 2.52% -13.60% 12.02% 5.48% 1.65%
eBay Inc. -26.52% -23.33% 65.87% -3.88%
Home Depot Inc. -4.67% -0.96% 2.46% -2.50%
Lowe’s Cos. Inc. -0.81% 4.08% -4.44% -5.37%
Netflix Inc. 44.39% 39.94% 48.86% 61.24%
Target Corp. -4.02% -5.22% -9.80% -19.15%
TJX Cos. Inc. 16.13% -2.63% 12.23% 5.23%
Walmart Inc. -7.84% -3.19% -1.60% -0.83%
Cash-Flow-Statement-Based Accruals Ratio, Sector
General Retailers -6.56% 2.26% 0.47% -4.81%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Consumer Services 6.48% 3.97% 2.74% 3.79%

Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).

2018 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -8,281 ÷ [(51,588 + 40,870) ÷ 2] = -17.91%

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, Amazon.com Inc. improved earnings quality from 2017 to 2018.