Microsoft Excel LibreOffice Calc

Allergan PLC (AGN)

Financial Reporting Quality: Aggregate Accruals

Difficulty: Advanced

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

Allergan PLC, balance sheet computation of aggregate accruals

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Operating Assets
Total assets 118,341,900  128,986,300  135,840,700  52,529,100  22,725,900 
Less: Cash and cash equivalents 1,817,200  1,724,000  1,096,000  250,000  329,000 
Less: Marketable securities 4,632,100  11,501,500  9,300  1,000  2,500 
Operating assets 111,892,600  115,760,800  134,735,400  52,278,100  22,394,400 
Operating Liabilities
Total liabilities 44,504,800  52,785,800  59,251,400  24,193,600  13,188,800 
Less: Current portion of long-term debt and capital leases 4,231,800  2,797,900  2,432,800  697,400  534,600 
Less: Long-term debt and capital leases, excluding current portion 25,843,500  29,970,800  40,293,400  14,846,300  8,517,400 
Operating liabilities 14,429,500  20,017,100  16,525,200  8,649,900  4,136,800 
Net operating assets1 97,463,100  95,743,700  118,210,200  43,628,200  18,257,600 
Balance-sheet-based aggregate accruals2 1,719,400  (22,466,500) 74,582,000  25,370,600  –
Ratio
Balance-sheet-based accruals ratio3 1.78% -21.00% 92.17% 81.99% –
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
Abbott Laboratories 69.42% -1.06% -3.34% 5.31% –
AbbVie Inc. -7.02% 25.20% 105.82% -10.63% –
Amgen Inc. -33.04% -6.85% -4.19% -16.66% –
Biogen Inc. 7.67% 9.75% 26.50% 17.78% –
Bristol-Myers Squibb Co. -24.97% -0.82% 9.08% -21.32% –
Celgene Corp. -18.63% -5.27% 79.80% 22.98% –
Eli Lilly & Co. -5.99% 1.26% -2.72% 6.44% –
Gilead Sciences Inc. -16.94% 23.56% 38.29% 10.44% –
Johnson & Johnson 31.51% 5.55% -5.16% -12.84% –
Merck & Co. Inc. -0.65% -12.97% 6.02% -9.49% –
Pfizer Inc. 12.36% 4.12% 11.13% -11.14% –
Regeneron Pharmaceuticals Inc. 33.15% 26.37% 34.77% 17.45% –
Balance-Sheet-Based Accruals Ratio, Sector
Pharmaceuticals & Biotechnology 8.00% -1.83% 29.02% 0.34% –
Balance-Sheet-Based Accruals Ratio, Industry
Health Care 8.34% 0.71% 31.81% 2.29% –

Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-18), 10-K (filing date: 2014-02-25).

2017 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 111,892,600 – 14,429,500 = 97,463,100

2 Balance-sheet-based aggregate accruals = Net operating assets 2017 – Net operating assets 2016
= 97,463,100 – 95,743,700 = 1,719,400

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,719,400 ÷ [(97,463,100 + 95,743,700) ÷ 2] = 1.78%

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, Allergan PLC improved earnings quality from 2016 to 2017.

Cash-Flow-Statement-Based Accruals Ratio

Allergan PLC, cash flow statement computation of aggregate accruals

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income (loss) attributable to shareholders (4,125,500) 14,973,400  3,915,200  (1,630,500) (750,400)
Less: Net cash provided by operating activities 5,873,400  1,425,300  4,530,000  2,243,000  1,213,500 
Less: Net cash (used in) provided by investing activities (878,000) 24,333,300  (37,120,900) (5,370,600) (275,300)
Cash-flow-statement-based aggregate accruals (9,120,900) (10,785,200) 36,506,100  1,497,100  (1,688,600)
Ratio
Cash-flow-statement-based accruals ratio1 -9.44% -10.08% 45.11% 4.84% –
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
Abbott Laboratories 12.34% -6.46% 4.27% -4.88% –
AbbVie Inc. -12.92% 16.02% 59.26% -9.59% –
Amgen Inc. -22.85% 22.06% 11.81% 7.33% –
Biogen Inc. 6.65% 12.70% 39.81% 17.50% –
Bristol-Myers Squibb Co. -28.29% 0.76% 8.10% -13.71% –
Celgene Corp. 4.95% -7.35% 55.24% 12.04% –
Eli Lilly & Co. -11.43% 5.63% -2.13% 10.71% –
Gilead Sciences Inc. 28.23% 29.15% 45.78% 6.43% –
Johnson & Johnson -7.40% 4.68% 7.15% 17.15% –
Merck & Co. Inc. -13.29% -5.97% -5.73% 7.75% –
Pfizer Inc. 10.69% -1.06% -5.98% -2.74% –
Regeneron Pharmaceuticals Inc. 19.22% 13.64% 8.37% 1.33% –
Cash-Flow-Statement-Based Accruals Ratio, Sector
Pharmaceuticals & Biotechnology -2.28% 1.73% 16.40% 4.81% –
Cash-Flow-Statement-Based Accruals Ratio, Industry
Health Care 0.42% 2.67% 16.24% 5.88% –

Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-18), 10-K (filing date: 2014-02-25).

2017 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -9,120,900 ÷ [(97,463,100 + 95,743,700) ÷ 2] = -9.44%

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, Allergan PLC improved earnings quality from 2016 to 2017.