Stock Analysis on Net
Stock Analysis on Net

Kraft Foods Group Inc. (NASDAQ:KRFT)

$22.49

This company has been moved to the archive! The financial data has not been updated since April 28, 2015.

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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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Balance-Sheet-Based Accruals Ratio

Kraft Foods Group Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 27, 2014 Dec 28, 2013 Dec 29, 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, excluding current portion
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
lululemon athletica inc.
Nike Inc.

Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).

1 2014 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =

2 2014 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2014 – Net operating assets2013
= – =

3 2014 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 annual financial reporting quality measures reveals distinct changes between the two periods ending December 28, 2013, and December 27, 2014.

Net Operating Assets
There is a slight decrease in net operating assets from 13,481 million USD in 2013 to 13,104 million USD in 2014. This indicates a minor reduction in the company's invested capital in core operations over the year.
Balance-Sheet-Based Aggregate Accruals
A notable shift is observed in aggregate accruals, which changed from a positive value of 1,193 million USD in 2013 to a negative value of -377 million USD in 2014. This reversal suggests a significant alteration in the timing of cash flows relative to earnings, which could impact earnings quality.
Balance-Sheet-Based Accruals Ratio
The accruals ratio decreased sharply from 9.26% in 2013 to -2.84% in 2014. This substantial decline reflects the movement from a high positive accrual component to a negative one, indicating a reduction in the proportion of earnings attributable to accrual-based items relative to net operating assets.

Overall, the data points to a reduction in net operating assets accompanied by a significant decrease and shift in accruals measures. The negative accruals in the later period may imply more conservative financial reporting or possible changes in the company's working capital management. These dynamics could affect the interpretation of earnings quality and deserve further investigation to understand underlying operational or accounting factors.

Cash-Flow-Statement-Based Accruals Ratio

Kraft Foods Group Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 27, 2014 Dec 28, 2013 Dec 29, 2012
Net earnings
Less: Net cash provided by operating activities
Less: Net cash used in investing activities
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
lululemon athletica inc.
Nike Inc.

Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).

1 2014 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.

The financial data reveals noticeable shifts in the quality measure indicators over the two reported years. Net operating assets displayed a slight decline from 13,481 million US dollars at the end of 2013 to 13,104 million US dollars by the end of 2014, suggesting a modest reduction in the operational asset base.

More prominently, the cash-flow-statement-based aggregate accruals experienced a significant reversal. In 2013, this figure was positive at 1,098 million US dollars, whereas in 2014, it turned negative to -442 million US dollars. This change indicates a substantial alteration in accrual accounting adjustments affecting reported earnings.

Correspondingly, the cash-flow-statement-based accruals ratio, expressed as a percentage, shifted from a positive 8.52% in 2013 to a negative -3.33% in 2014. This ratio's movement from positive to negative territory highlights a deterioration in earnings quality and suggests changes in the underlying accruals relative to cash flows during the period analyzed.

Net Operating Assets
Decreased moderately by approximately 2.8%, indicating a slight contraction in the asset base used in operations.
Aggregate Accruals
Shifted from a significant positive value to a negative value, pointing to a reversal in non-cash income components.
Accruals Ratio
Changed from positive to negative, reflecting a potential deterioration in earnings quality and an increase in the proportion of non-cash earnings adjustments relative to cash flows.