Stock Analysis on Net
Stock Analysis on Net

Air Products & Chemicals Inc. (NYSE:APD)

$22.49

This company has been moved to the archive! The financial data has not been updated since August 9, 2021.

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

Air Products & Chemicals Inc., balance sheet computation of aggregate accruals

US$ in thousands

Microsoft Excel
Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015
Operating Assets
Total assets
Less: Cash and cash items
Less: Short-term investments
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term borrowings
Less: Current portion of long-term debt
Less: Long-term debt, excluding current portion
Less: Long-term debt, related party
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Linde plc
Sherwin-Williams Co.
Balance-Sheet-Based Accruals Ratio, Sector
Chemicals
Balance-Sheet-Based Accruals Ratio, Industry
Materials

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

1 2020 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =

2 2020 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2020 – Net operating assets2019
= – =

3 2020 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 financial data exhibits notable fluctuations in the key measures related to net operating assets and accruals from September 2016 through September 2020.

Net Operating Assets
The net operating assets show an initial decline from approximately $11.94 billion in 2016 to about $10.47 billion in 2017, followed by a recovery and upward trend to nearly $13.99 billion by 2020. This pattern indicates a contraction in the asset base in 2017, succeeded by consistent growth through to 2020, suggesting expansion or re-investment in operating assets over the latter years.
Balance-sheet-based Aggregate Accruals
The aggregate accruals data reveal considerable variability, moving from negative values of approximately -$1.12 billion and -$1.47 billion in 2016 and 2017, respectively, to positive values thereafter. Specifically, in 2018, the accruals reverse sharply to $1.54 billion, then fluctuate to $287 million in 2019 before increasing again to $1.69 billion in 2020. This swing from negative to positive accruals indicates a significant change in accounting judgments or operational factors impacting accruals during this period.
Balance-sheet-based Accruals Ratio
Corresponding to the aggregate accruals, the accruals ratio reflects a similar pattern. It is negative in the first two years (-8.93% in 2016, -13.09% in 2017), turning positive and peaking at 13.72% in 2018, decreasing sharply to 2.36% in 2019, and then rising again to 12.88% in 2020. This ratio trend underscores the volatility in accruals relative to net operating assets, with a marked reversal from negative to positive territory after 2017 and evident variability thereafter.

Overall, the data suggest significant shifts in accrual accounting figures and asset utilization over the analyzed time frame. The initial decline in net operating assets juxtaposed with negative accruals points to possible asset disposals or impairment coupled with conservative accrual accounting in the earlier years. The subsequent increase in net operating assets, along with positive and fluctuating accruals, may reflect operational growth accompanied by varying accrual recognition practices or economic conditions influencing the company's financial reporting quality.

Cash-Flow-Statement-Based Accruals Ratio

Air Products & Chemicals Inc., cash flow statement computation of aggregate accruals

US$ in thousands

Microsoft Excel
Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015
Net income attributable to Air Products
Less: Cash provided by operating activities
Less: Cash used for investing activities
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Linde plc
Sherwin-Williams Co.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Chemicals
Cash-Flow-Statement-Based Accruals Ratio, Industry
Materials

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

1 2020 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 data reveals notable trends in the financial reporting quality indicators over the five-year period ending September 30, 2020.

Net Operating Assets
There is a general upward trend in net operating assets, increasing from approximately 11.94 billion US dollars in 2016 to nearly 14.0 billion US dollars in 2020. A minor decline was observed in 2017 to around 10.47 billion US dollars, but the figure increased again in subsequent years, reaching its highest level in 2020. This suggests a gradual expansion in the company’s operating asset base over the analyzed period.
Cash-flow-statement-based Aggregate Accruals
The aggregate accruals displayed significant fluctuations. The year 2016 showed a negative value (-1.1 billion US dollars), indicating a net cash inflow adjustment. This shifted sharply to a positive 1.88 billion US dollars in 2017, followed by a decline to 592 million US dollars in 2018. The values then rose progressively to 903.5 million US dollars in 2019 and peaked again at 2.18 billion US dollars in 2020. This variability suggests changing patterns in the timing differences between earnings and cash flows, which may reflect shifts in accounting practices or operational factors.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, expressed as a percentage, mirrors the fluctuations of the aggregate accruals but in relative terms. It started at -8.84% in 2016, indicating that cash flows exceeded earnings adjustments. The ratio then turned positive in 2017 at 16.82%, decreased in the next two years to 5.27% in 2018 and 7.43% in 2019, before increasing again substantially to 16.6% in 2020. These movements highlight variability in the relationship between accruals and net operating assets, which could impact earnings quality and the interpretation of operational cash flows.

Overall, the financial quality measures indicate increasing operating assets and highly variable accruals over the period. The large swings in aggregate accruals and their ratios suggest fluctuating accrual-based earnings components relative to cash flows, emphasizing the need to monitor these indicators for insights into earnings sustainability and financial statement transparency.