Stock Analysis on Net

Kraft Heinz Co. (NASDAQ:KHC)

This company has been moved to the archive! The financial data has not been updated since July 31, 2020.

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.


Balance-Sheet-Based Accruals Ratio

Kraft Heinz Co., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 28, 2019 Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
Operating Assets
Total assets 101,450 103,461 120,232 120,480 122,973
Less: Cash and cash equivalents 2,279 1,130 1,629 4,204 4,837
Operating assets 99,171 102,331 118,603 116,276 118,136
Operating Liabilities
Total liabilities 49,701 51,683 53,985 62,906 56,737
Less: Commercial paper and other short-term debt 6 21 460 645 4
Less: Current portion of long-term debt 1,022 377 2,743 2,046 79
Less: Long-term debt, excluding current portion 28,216 30,770 28,333 29,713 25,151
Operating liabilities 20,457 20,515 22,449 30,502 31,503
 
Net operating assets1 78,714 81,816 96,154 85,774 86,633
Balance-sheet-based aggregate accruals2 (3,102) (14,338) 10,380 (859)
Financial Ratio
Balance-sheet-based accruals ratio3 -3.86% -16.11% 11.41% -1.00%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Coca-Cola Co.
Mondelēz International Inc.
PepsiCo Inc.
Philip Morris International Inc.

Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

1 2019 Calculation
Net operating assets = Operating assets – Operating liabilities
= 99,17120,457 = 78,714

2 2019 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2019 – Net operating assets2018
= 78,71481,816 = -3,102

3 2019 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -3,102 ÷ [(78,714 + 81,816) ÷ 2] = -3.86%

4 Click competitor name to see calculations.


Net Operating Assets
The net operating assets displayed a fluctuating trend over the four-year period. Beginning at approximately 85,774 million US dollars at the end of 2016, the value increased notably to 96,154 million in 2017. However, this was followed by a decline over the next two years, dropping to 81,816 million in 2018 and further decreasing to 78,714 million by the end of 2019. This suggests a peak in net operating assets in 2017, with a subsequent contraction.
Balance-Sheet-Based Aggregate Accruals
The balance-sheet-based aggregate accruals exhibited significant volatility during the period analyzed. In 2016, a negative accrual value of -859 million US dollars was reported, which shifted dramatically to a positive accrual of 10,380 million in 2017. The following years saw a reversal to negative values again, with -14,338 million in 2018 and -3,102 million in 2019. This pattern indicates considerable inconsistency in accruals, with a notable spike in 2017 contrasted by large negative adjustments in subsequent years.
Balance-Sheet-Based Accruals Ratio
The accruals ratio, expressed as a percentage, mirrored the volatility seen in aggregate accruals. Starting with a slightly negative -1% at year-end 2016, there was a sharp increase to 11.41% in 2017, reflecting substantial accrual activity relative to net operating assets. Following this peak, the ratio plunged to -16.11% in 2018 and moderated to -3.86% in 2019. The negative ratios in the last two years suggest a reversal in the accrual trend compared to the 2017 peak, indicating potential changes in earnings quality or accounting adjustments.

Cash-Flow-Statement-Based Accruals Ratio

Kraft Heinz Co., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 28, 2019 Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
Net income (loss) attributable to Kraft Heinz 1,935 (10,192) 10,999 3,632 634
Less: Net cash provided by operating activities 3,552 2,574 527 5,238 2,467
Less: Net cash (used for) provided by investing activities 1,511 288 1,156 (1,113) (9,704)
Cash-flow-statement-based aggregate accruals (3,128) (13,054) 9,316 (493) 7,871
Financial Ratio
Cash-flow-statement-based accruals ratio1 -3.90% -14.67% 10.24% -0.57%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Coca-Cola Co.
Mondelēz International Inc.
PepsiCo Inc.
Philip Morris International Inc.

Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

1 2019 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -3,128 ÷ [(78,714 + 81,816) ÷ 2] = -3.90%

2 Click competitor name to see calculations.


Net Operating Assets
The net operating assets displayed a fluctuating trend over the four-year period. Beginning at 85,774 million US dollars in 2016, there was a noticeable increase to 96,154 million in 2017. However, the value decreased significantly in the subsequent years, falling to 81,816 million in 2018 and further to 78,714 million in 2019. This trend suggests an initial expansion followed by a reduction in net operating assets, indicating possible changes in the company's investment or operational strategies during this period.
Cash-flow-statement-based Aggregate Accruals
This measure showed considerable volatility over the periods examined. It started with a negative value of -493 million US dollars in 2016, turned sharply positive to 9,316 million in 2017, then shifted dramatically to a negative -13,054 million in 2018, and finally moved to a negative -3,128 million in 2019. The sharp swings in aggregate accruals may reflect fluctuations in earnings quality, operational adjustments, or changes in accounting estimates and policies.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, expressed as a percentage, mirrored the fluctuations seen in aggregate accruals. It began with a slight negative ratio of -0.57% in 2016, surged to a positive 10.24% in 2017, then declined to a markedly negative -14.67% in 2018, and moderated to -3.9% in 2019. Such variability indicates significant changes in the relationship between accruals and cash flows from operations, which may signal variations in earnings quality and the reliability of reported earnings across these years.