Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Automatic Data Processing Inc. (NASDAQ:ADP)

Financial Reporting Quality: Aggregate Accruals

Advanced level

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

Automatic Data Processing Inc., balance sheet computation of aggregate accruals

US$ in thousands

Microsoft Excel LibreOffice Calc
Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Operating Assets
Total assets 39,165,500  41,887,700  37,088,700  37,180,000  43,670,000  33,110,500 
Less: Cash and cash equivalents 1,908,500  1,949,200  2,170,000  2,780,400  3,191,100  1,639,300 
Less: Short-term marketable securities —  10,500  —  —  —  — 
Operating assets 37,257,000  39,928,000  34,918,700  34,399,600  40,478,900  31,471,200 
Operating Liabilities
Total liabilities 33,413,300  36,487,800  33,629,100  33,203,000  39,188,400  28,302,000 
Less: Obligations under reverse repurchase agreements 13,600  262,000  —  —  —  — 
Less: Short-term debt 1,001,800  —  —  —  —  — 
Less: Long-term debt 1,002,800  2,002,200  2,002,400  2,002,400  2,007,700  9,200 
Operating liabilities 31,395,100  34,223,600  31,626,700  31,200,600  37,180,700  28,292,800 
 
Net operating assets1 5,861,900  5,704,400  3,292,000  3,199,000  3,298,200  3,178,400 
Balance-sheet-based aggregate accruals2 157,500  2,412,400  93,000  (99,200) 119,800  — 
Financial Ratio
Balance-sheet-based accruals ratio3 2.72% 53.63% 2.87% -3.05% 3.70%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Accenture PLC 3.73% 42.14% 1.41% 51.55% 35.46%
Waste Management Inc. 4.61% 4.60% 6.06% 2.00%
Balance-Sheet-Based Accruals Ratio, Sector
Support Services 0.00% 21.94% 3.64% 13.67% 6.85%
Balance-Sheet-Based Accruals Ratio, Industry
Industrials 0.00% -7.59% 2.14% 12.22% -15.61%

Based on: 10-K (filing date: 2020-08-05), 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07).

1 2020 Calculation
Net operating assets = Operating assets – Operating liabilities
= 37,257,00031,395,100 = 5,861,900

2 2020 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2020 – Net operating assets2019
= 5,861,9005,704,400 = 157,500

3 2020 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 157,500 ÷ [(5,861,900 + 5,704,400) ÷ 2] = 2.72%

4 Click competitor name to see calculations.

Financial 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, Automatic Data Processing Inc. improved earnings quality from 2019 to 2020.

Cash-Flow-Statement-Based Accruals Ratio

Automatic Data Processing Inc., cash flow statement computation of aggregate accruals

US$ in thousands

Microsoft Excel LibreOffice Calc
Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Net earnings 2,466,500  2,292,800  1,620,800  1,733,400  1,492,500  1,452,500 
Less: Net cash flows provided by operating activities 3,026,200  2,688,300  2,515,200  2,125,900  1,859,900  1,905,600 
Less: Net cash flows (used in) provided by investing activities 3,156,300  (2,197,700) (2,504,600) 5,730,400  (9,087,200) (3,760,300)
Cash-flow-statement-based aggregate accruals (3,716,000) 1,802,200  1,610,200  (6,122,900) 8,719,800  3,307,200 
Financial Ratio
Cash-flow-statement-based accruals ratio1 -64.26% 40.06% 49.61% -188.48% 269.27%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Accenture PLC -13.65% -1.28% -12.70% 15.84% 5.24%
Waste Management Inc. 1.03% 3.30% 0.98% 1.07%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Support Services 0.00% 6.64% 5.72% -23.15% 44.00%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials 0.00% -2.80% -2.20% 0.01% -9.77%

Based on: 10-K (filing date: 2020-08-05), 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07).

1 2020 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -3,716,000 ÷ [(5,861,900 + 5,704,400) ÷ 2] = -64.26%

2 Click competitor name to see calculations.

Financial 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, Automatic Data Processing Inc. deteriorated earnings quality from 2019 to 2020.