Microsoft Excel LibreOffice Calc

3M Co. (MMM)


Financial Reporting Quality: Aggregate Accruals

Advanced level

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

3M Co., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Operating Assets
Total assets 36,500  37,987  32,906  32,718  31,269 
Less: Cash and cash equivalents 2,853  3,053  2,398  1,798  1,897 
Less: Marketable securities, current 380  1,076  280  118  626 
Operating assets 33,267  33,858  30,228  30,802  28,746 
Operating Liabilities
Total liabilities 26,652  26,365  22,563  20,971  18,127 
Less: Short-term borrowings and current portion of long-term debt 1,211  1,853  972  2,044  106 
Less: Long-term debt, excluding current portion 13,411  12,096  10,678  8,753  6,731 
Less: Capital lease obligations 75  60  45  46  59 
Operating liabilities 11,955  12,356  10,868  10,128  11,231 
 
Net operating assets1 21,312  21,502  19,360  20,674  17,515 
Balance-sheet-based aggregate accruals2 (190) 2,142  (1,314) 3,159 
Financial Ratio
Balance-sheet-based accruals ratio3 -0.89% 10.48% -6.56% 16.54%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Danaher Corp. 2.50% 5.32% -4.16% 39.91%
General Electric Co. -38.98% 10.44% -46.19% -58.57%
Honeywell International Inc. -3.49% -5.76% 2.50% 24.84%
Balance-Sheet-Based Accruals Ratio, Sector
General Industrials -22.83% 7.67% -31.68% -40.84%
Balance-Sheet-Based Accruals Ratio, Industry
Industrials 4.94% 8.49% -15.11% -22.63%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 2018 Calculation
Net operating assets = Operating assets – Operating liabilities
= 33,26711,955 = 21,312

2 2018 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2018 – Net operating assets2017
= 21,31221,502 = -190

3 2018 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -190 ÷ [(21,312 + 21,502) ÷ 2] = -0.89%

4 Click competitor name to see calculations.

Financial 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, 3M Co. improved earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

3M Co., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income attributable to 3M 5,349  4,858  5,050  4,833  4,956 
Less: Net cash provided by operating activities 6,439  6,240  6,662  6,420  6,626 
Less: Net cash (used in) provided by investing activities 222  (3,086) (1,403) (2,817) (596)
Cash-flow-statement-based aggregate accruals (1,312) 1,704  (209) 1,230  (1,074)
Financial Ratio
Cash-flow-statement-based accruals ratio1 -6.13% 8.34% -1.04% 6.44%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Danaher Corp. 4.30% -0.40% 13.21% 48.33%
General Electric Co. -39.03% -16.11% -37.05% -28.29%
Honeywell International Inc. -2.89% -2.92% 10.35% 25.87%
Cash-Flow-Statement-Based Accruals Ratio, Sector
General Industrials -23.02% -9.57% -21.78% -16.47%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials 0.53% -2.18% -8.32% -6.18%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 2018 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,312 ÷ [(21,312 + 21,502) ÷ 2] = -6.13%

2 Click competitor name to see calculations.

Financial 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, 3M Co. improved earnings quality from 2017 to 2018.