Financial Reporting Quality: Aggregate Accruals
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
Walgreens Boots Alliance Inc., balance sheet computation of aggregate accruals
US$ in millions
| Aug 31, 2019 | Aug 31, 2018 | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 67,598) | 68,124) | 66,009) | 72,688) | 68,782) | 37,182) | |
| Less: Cash and cash equivalents | 1,023) | 785) | 3,301) | 9,807) | 3,000) | 2,646) | |
| Operating assets | 66,575) | 67,339) | 62,708) | 62,881) | 65,782) | 34,536) | |
| Operating Liabilities | |||||||
| Total liabilities | 43,447) | 41,435) | 37,735) | 42,407) | 37,482) | 16,621) | |
| Less: Short-term debt | 5,738) | 1,966) | 251) | 323) | 1,068) | 774) | |
| Less: Long-term debt | 11,098) | 12,431) | 12,684) | 18,705) | 13,315) | 3,736) | |
| Operating liabilities | 26,611) | 27,038) | 24,800) | 23,379) | 23,099) | 12,111) | |
| Net operating assets1 | 39,964) | 40,301) | 37,908) | 39,502) | 42,683) | 22,425) | |
| Balance-sheet-based aggregate accruals2 | (337) | 2,393) | (1,594) | (3,181) | 20,258) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | -0.84% | 6.12% | -4.12% | -7.74% | 62.23% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Costco Wholesale Corp. | — | — | — | — | — | — | |
| Target Corp. | — | — | — | — | — | — | |
| Walmart Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 2019 Calculation
Net operating assets = Operating assets – Operating liabilities
= 66,575 – 26,611 = 39,964
2 2019 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2019 – Net operating assets2018
= 39,964 – 40,301 = -337
3 2019 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -337 ÷ [(39,964 + 40,301) ÷ 2] = -0.84%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a general decreasing trend from 42,683 million US dollars in 2015 to 39,964 million US dollars in 2019. Notably, there was a consistent decline from 2015 through 2017, dropping to 37,908 million, followed by a slight recovery in 2018 to 40,301 million before a modest decrease again in 2019.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals show significant volatility over the period. There was a high positive value of 20,258 million in 2015, which then shifted sharply to large negative values in subsequent years, reaching -3,181 million in 2016 and -1,594 million in 2017. In 2018, the value returned to positive at 2,393 million before dropping back near zero to -337 million in 2019. This pattern indicates considerable fluctuations in accruals, reflecting potential changes in working capital or accounting policies.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the volatility observed in the aggregate accruals. Starting at a high positive ratio of 62.23% in 2015, it turned negative to -7.74% in 2016 and further remained negative at -4.12% in 2017. The ratio reverted to a positive 6.12% in 2018 before declining again to a slightly negative -0.84% in 2019. This metric shows an oscillating pattern that may indicate inconsistencies in earnings quality or accrual management during the period under review.
Cash-Flow-Statement-Based Accruals Ratio
Walgreens Boots Alliance Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Aug 31, 2019 | Aug 31, 2018 | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | ||
|---|---|---|---|---|---|---|---|
| Net earnings attributable to Walgreens Boots Alliance, Inc. | 3,982) | 5,024) | 4,078) | 4,173) | 4,220) | 1,932) | |
| Less: Net cash provided by operating activities | 5,594) | 8,265) | 7,251) | 7,847) | 5,664) | 3,893) | |
| Less: Net cash used for investing activities | (2,307) | (5,501) | (843) | (3,517) | (4,276) | (1,731) | |
| Cash-flow-statement-based aggregate accruals | 695) | 2,260) | (2,330) | (157) | 2,832) | (230) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 1.73% | 5.78% | -6.02% | -0.38% | 8.70% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Costco Wholesale Corp. | — | — | — | — | — | — | |
| Target Corp. | — | — | — | — | — | — | |
| Walmart Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 2019 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 695 ÷ [(39,964 + 40,301) ÷ 2] = 1.73%
2 Click competitor name to see calculations.
- Net Operating Assets
-
The net operating assets exhibited a declining trend from 2015 to 2017, decreasing from 42,683 million US dollars to 37,908 million US dollars. This decline was followed by a modest increase in 2018, reaching 40,301 million US dollars, before slightly decreasing again to 39,964 million US dollars in 2019. Overall, the net operating assets showed some variability but remained relatively stable around the 40,000 million US dollars mark in the latter years.
- Cash-Flow-Statement-Based Aggregate Accruals
-
The aggregate accruals demonstrated considerable volatility over the analyzed period. In 2015, the value was positive at 2,832 million US dollars, but sharply declined to negative values in both 2016 (-157 million) and 2017 (-2,330 million). A significant positive reversal occurred in 2018, with accruals increasing to 2,260 million US dollars, followed by a reduction to 695 million US dollars in 2019. This fluctuation highlights variability in accrual-based earnings adjustments, indicative of potentially inconsistent earnings quality or varying operational adjustments over time.
- Cash-Flow-Statement-Based Accruals Ratio
-
The accruals ratio mirrored the trend observed in aggregate accruals but in relative terms. It started at a relatively high positive level of 8.7% in 2015, dropped to a marginal negative level of -0.38% in 2016, and further decreased to -6.02% in 2017, suggesting a deterioration in earnings quality or increases in accruals negatively impacting cash flows during this period. The ratio then rebounded substantially to 5.78% in 2018, indicating improved accrual management, before declining again to 1.73% in 2019. The fluctuations in this ratio suggest periods of variable earnings quality and cash flow correlation, with no consistent trend of improvement or deterioration.