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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- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
- Price to Sales (P/S) since 2005
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Balance-Sheet-Based Accruals Ratio
Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
---|---|---|---|---|---|---|
Operating Assets | ||||||
Total assets | ||||||
Less: Cash and cash equivalents | ||||||
Less: Short-term investments | ||||||
Operating assets | ||||||
Operating Liabilities | ||||||
Total liabilities | ||||||
Less: Short-term debt | ||||||
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. |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 2018 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2018 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2018 – Net operating assets2017
= – =
3 2018 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 over the four-year period reveals notable fluctuations and trends in the reported financial metrics. Net operating assets display an initial increase from 7,224 million US dollars in 2015 to a peak of 12,350 million US dollars in 2016. Subsequently, there is a slight decline in 2017 to 12,215 million US dollars, followed by a more pronounced decrease to 10,597 million US dollars in 2018.
Balance-sheet-based aggregate accruals exhibit a marked volatility throughout the observed period. In 2015, the figure stood significantly negative at -10,211 million US dollars, implying a considerable reduction attributed to accrual adjustments. The following year, 2016, shows a sharp reversal to a positive 5,126 million US dollars, indicating a substantial increase in accruals. This positive spike is followed by a sharp decrease close to zero in 2017 at -135 million US dollars, and further decline to -1,618 million US dollars in 2018, suggesting a move back towards negative accrual contributions but at a less extreme scale compared to 2015.
The balance-sheet-based accruals ratio supports these observations, reflecting considerable swings in proportionate terms relative to net operating assets. Starting from -82.82% in 2015, the ratio turns positive and high at 52.38% in 2016, evidencing a significant change in accrual components relative to operating assets. By 2017, the ratio pivots closer to neutral at -1.1%, indicating minimal net accrual impact, and it declines further to -14.19% in 2018, signifying a moderate negative accrual influence relative to net operating assets.
- Net Operating Assets
- Initial growth followed by a gradual decline indicates fluctuating investment or operational asset levels.
- Aggregate Accruals
- Wide variability suggests periods of substantial accrual adjustments, potentially reflecting changes in accounting estimates, working capital management, or other non-cash items affecting earnings quality.
- Accruals Ratio
- The significant shifts from highly negative to positive and back to negative ratios point to inconsistent accrual behavior, which may influence the reliability or predictability of reported earnings.
Overall, the financial data suggest fluctuations in accrual accounting practices and working capital management that could affect the stability and quality of earnings during the analyzed periods. The peak in net operating assets and accruals in 2016 followed by declines and moderation thereafter may warrant further investigation into underlying operational or accounting changes occurring in that year.
Cash-Flow-Statement-Based Accruals Ratio
Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
---|---|---|---|---|---|---|
Net income (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. |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 2018 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 experienced a notable increase from 7,224 million USD at the end of 2015 to 12,350 million USD at the end of 2016. Following this peak, the figure slightly declined to 12,215 million USD at the end of 2017 and continued decreasing to 10,597 million USD by the end of 2018. This indicates an initial expansion of operating assets followed by a gradual contraction over the subsequent two years.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals showed significant volatility during the period. In 2015, there was a negative value of -479 million USD, shifting dramatically to a positive 6,447 million USD in 2016, suggesting a large reversal or adjustment in accruals. Subsequently, the accruals reverted to negative figures in both 2017 and 2018, with -2,866 million USD and -3,025 million USD respectively, highlighting a trend towards more conservative or reduced accrual-based adjustments in those years.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio reinforced the observations from the aggregate accruals, demonstrating a substantial increase from -3.88% in 2015 to an unusually high 65.87% in 2016. This spike indicates a significant accumulation of accruals relative to cash flow. The ratio then reversed to negative values of -23.33% and -26.52% for 2017 and 2018 respectively, signaling a sizable decline in accruals relative to cash flow and suggesting more conservative financial reporting practices or changes in operating performance.