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.
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Bed Bath & Beyond Inc. pages available for free this week:
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Feb 26, 2022 | Feb 27, 2021 | Feb 29, 2020 | Mar 2, 2019 | Mar 3, 2018 | Feb 25, 2017 | ||
---|---|---|---|---|---|---|---|
Operating Assets | |||||||
Total assets | |||||||
Less: Cash and cash equivalents | |||||||
Less: Short term investment securities | |||||||
Operating assets | |||||||
Operating Liabilities | |||||||
Total liabilities | |||||||
Less: Current finance lease liabilities | |||||||
Less: Noncurrent finance lease liabilities | |||||||
Less: Long term debt | |||||||
Operating liabilities | |||||||
Net operating assets1 | |||||||
Balance-sheet-based aggregate accruals2 | |||||||
Financial Ratio | |||||||
Balance-sheet-based accruals ratio3 | |||||||
Benchmarks | |||||||
Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
Amazon.com Inc. | |||||||
Home Depot Inc. | |||||||
Lowe’s Cos. Inc. | |||||||
TJX Cos. Inc. | |||||||
Balance-Sheet-Based Accruals Ratio, Sector | |||||||
Consumer Discretionary Distribution & Retail | |||||||
Balance-Sheet-Based Accruals Ratio, Industry | |||||||
Consumer Discretionary |
Based on: 10-K (reporting date: 2022-02-26), 10-K (reporting date: 2021-02-27), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-03-02), 10-K (reporting date: 2018-03-03), 10-K (reporting date: 2017-02-25).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= – =
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =
4 Click competitor name to see calculations.
The analysis of the financial reporting quality measures over the five-year period reveals several notable trends and changes.
- Net Operating Assets
- There is a clear and consistent downward trend in net operating assets, decreasing from $3,661,027 thousand in 2018 to $952,366 thousand in 2022. This significant reduction suggests a substantial contraction in the company's operating asset base over the period analyzed.
- Balance-sheet-based Aggregate Accruals
- The balance-sheet-based aggregate accruals exhibit large negative values throughout the period, peaking at -$1,085,989 thousand in 2020, indicating increased accruals. After this peak, the magnitude of negative accruals diminishes somewhat but remains considerable, at -$161,949 thousand in 2022. This pattern points to heightened accrual activity particularly around 2019-2020, followed by a partial reversal in subsequent years.
- Balance-sheet-based Accruals Ratio
- The accruals ratio follows a similar trajectory to the aggregate accruals, showing a dramatic increase in negative values from -1.8% in 2018 to -55.55% in 2021, with some recovery to -15.67% in 2022. This ratio reflects the proportion of accruals relative to net operating assets, amplifying the observed volatility and indicating a period of intensified accruals which subsides by the final year.
Overall, the data demonstrate a steady decline in net operating assets accompanied by substantial fluctuations in accrual measures, particularly a marked increase in accrual intensity between 2019 and 2021. The partial normalization in 2022 may suggest efforts to stabilize or reduce accruals relative to the reduced operating asset base. These patterns may warrant further analysis into the underlying causes of such changes, including operational efficiency, asset management, and financial reporting practices.
Cash-Flow-Statement-Based Accruals Ratio
Feb 26, 2022 | Feb 27, 2021 | Feb 29, 2020 | Mar 2, 2019 | Mar 3, 2018 | Feb 25, 2017 | ||
---|---|---|---|---|---|---|---|
Net earnings (loss) | |||||||
Less: Net cash provided by operating activities | |||||||
Less: Net cash (used in) provided by investing activities | |||||||
Cash-flow-statement-based aggregate accruals | |||||||
Financial Ratio | |||||||
Cash-flow-statement-based accruals ratio1 | |||||||
Benchmarks | |||||||
Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
Amazon.com Inc. | |||||||
Home Depot Inc. | |||||||
Lowe’s Cos. Inc. | |||||||
TJX Cos. Inc. | |||||||
Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
Consumer Discretionary Distribution & Retail | |||||||
Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
Consumer Discretionary |
Based on: 10-K (reporting date: 2022-02-26), 10-K (reporting date: 2021-02-27), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-03-02), 10-K (reporting date: 2018-03-03), 10-K (reporting date: 2017-02-25).
1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a marked downward trend over the analyzed periods. Starting at approximately $3,661 million in early 2018, the figure declines steadily each year, reaching about $952 million by early 2022. This significant reduction suggests a possible contraction in operating asset base or an increase in non-operating assets or liabilities.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals show considerable volatility and a generally negative trend through the years. Initially positive at around $240 million in early 2018, the accruals turn sharply negative in subsequent years, hitting a low of approximately -$1,296 million by early 2020. Though there is some improvement thereafter, it remains negative, with the latest figure near -$228 million in early 2022. This pattern could indicate increasing discrepancies between accounting earnings and actual cash flows, potentially reflecting challenges in earnings quality or financial management.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, shifts from a positive 6.49% in 2018 to significantly negative values in the following years. It peaks negatively at -74.98% in early 2021 before improving to -22.09% by early 2022. This ratio's movement underscores a growing disconnect between earnings and cash flows during the period, though some recovery is observed in the latest year. Such fluctuations may suggest variability in accruals management or changes in revenue recognition and expense timing.