.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
Broadcom Inc., balance sheet computation of aggregate accruals
USD $ in millions
| Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| | Total assets | ||||||
| | Less: Cash and cash equivalents | ||||||
| | Operating assets | ||||||
| Operating Liabilities | |||||||
| | Total liabilities | ||||||
| | Less: Current portion of long-term debt | ||||||
| | Less: Long-term debt | ||||||
| | Less: Convertible notes payable to related party, non-current | ||||||
| | Operating liabilities | ||||||
| | Net operating assets1 | ||||||
| | Balance-sheet-based aggregate accruals2 | ||||||
| Ratio | |||||||
| | Balance-sheet-based accruals ratio3 | % | % | % | % | % | % |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors | |||||||
| Apple Inc. | % | % | % | % | % | % | |
| Applied Materials Inc. | % | % | % | % | % | % | |
| Cisco Systems Inc. | % | % | % | % | % | % | |
| HP Inc. | % | % | % | % | % | % | |
| Intel Corp. | % | % | % | % | % | % | |
| NVIDIA Corp. | % | % | % | % | % | % | |
| Qualcomm Inc. | % | % | % | % | % | % | |
| Texas Instruments Inc. | % | % | % | % | % | % | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | % | % | % | % | % | % | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Technology | % | % | % | % | % | % | |
2017 Calculations
1 Net operating assets = Operating assets – Operating liabilities
= – =
2 Balance-sheet-based aggregate accruals = Net operating assets 2017 – Net operating assets 2016
= – =
3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] = %
| 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, Broadcom Inc. improved earnings quality from 2016 to 2017. |
Cash-Flow-Statement-Based Accruals Ratio
Broadcom Inc., cash flow statement computation of aggregate accruals
USD $ in millions
| Oct 29, 2017 | Oct 30, 2016 | Nov 1, 2015 | Nov 2, 2014 | Nov 3, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Net income (loss) attributable to ordinary shares | ||||||
| | Less: Net cash provided by operating activities | ||||||
| | Less: Net cash used in investing activities | ||||||
| | Cash-flow-statement-based aggregate accruals | ||||||
| Ratio | |||||||
| | Cash-flow-statement-based accruals ratio1 | % | % | % | % | % | % |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors | |||||||
| Apple Inc. | % | % | % | % | % | % | |
| Applied Materials Inc. | % | % | % | % | % | % | |
| Cisco Systems Inc. | % | % | % | % | % | % | |
| HP Inc. | % | % | % | % | % | % | |
| Intel Corp. | % | % | % | % | % | % | |
| NVIDIA Corp. | % | % | % | % | % | % | |
| Qualcomm Inc. | % | % | % | % | % | % | |
| Texas Instruments Inc. | % | % | % | % | % | % | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | % | % | % | % | % | % | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Technology | % | % | % | % | % | % | |
2017 Calculations
1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] = %
| 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, Broadcom Inc. improved earnings quality from 2016 to 2017. |
