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
US$ in thousands
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 101,787,600 | 118,341,900 | 128,986,300 | 135,840,700 | 52,529,100 | |
| Less: Cash and cash equivalents | 880,400 | 1,817,200 | 1,724,000 | 1,096,000 | 250,000 | |
| Less: Marketable securities | 1,026,900 | 4,632,100 | 11,501,500 | 9,300 | 1,000 | |
| Operating assets | 99,880,300 | 111,892,600 | 115,760,800 | 134,735,400 | 52,278,100 | |
| Operating Liabilities | ||||||
| Total liabilities | 36,656,600 | 44,504,800 | 52,785,800 | 59,251,400 | 24,193,600 | |
| Less: Current portion of long-term debt and capital leases | 868,300 | 4,231,800 | 2,797,900 | 2,432,800 | 697,400 | |
| Less: Long-term debt and capital leases, excluding current portion | 22,929,400 | 25,843,500 | 29,970,800 | 40,293,400 | 14,846,300 | |
| Operating liabilities | 12,858,900 | 14,429,500 | 20,017,100 | 16,525,200 | 8,649,900 | |
| Net operating assets1 | 87,021,400 | 97,463,100 | 95,743,700 | 118,210,200 | 43,628,200 | |
| Balance-sheet-based aggregate accruals2 | (10,441,700) | 1,719,400 | (22,466,500) | 74,582,000 | — | |
| Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -11.32% | 1.78% | -21.00% | 92.17% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Abbott Laboratories | -6.71% | 69.42% | -1.06% | -3.34% | — | |
| AbbVie Inc. | -31.42% | -7.02% | 25.20% | 105.82% | — | |
| Amgen Inc. | -9.88% | -33.04% | -6.85% | -4.19% | — | |
| Biogen Inc. | 3.85% | 7.67% | 9.75% | 26.50% | — | |
| Bristol-Myers Squibb Co. | -3.17% | -24.97% | -0.82% | 9.08% | — | |
| Celgene Corp. | 62.19% | -18.63% | -5.27% | 79.80% | — | |
| Eli Lilly & Co. | -10.27% | -5.99% | 1.26% | -2.72% | — | |
| Gilead Sciences Inc. | -41.29% | -16.94% | 23.56% | 38.29% | — | |
| Johnson & Johnson | -8.03% | 31.51% | 5.55% | -5.16% | — | |
| Merck & Co. Inc. | -15.70% | -0.65% | -12.97% | 6.02% | — | |
| Pfizer Inc. | -9.34% | 12.36% | 4.12% | 11.13% | — | |
| Regeneron Pharmaceuticals Inc. | 20.14% | 33.15% | 26.37% | 34.77% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals & Biotechnology | -9.53% | 8.00% | -1.83% | 29.02% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | -1.89% | 7.94% | 0.81% | 35.33% | — | |
Based on: 10-K (filing date: 2019-02-15), 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).
1 2018 Calculation
Net operating assets = Operating assets – Operating liabilities
= 99,880,300 – 12,858,900 = 87,021,400
2 2018 Calculation
Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 87,021,400 – 97,463,100 = -10,441,700
3 2018 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -10,441,700 ÷ [(87,021,400 + 97,463,100) ÷ 2] = -11.32%
4 Click competitor name to see calculations.
| 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 deteriorated earnings quality from 2017 to 2018. |
Cash-Flow-Statement-Based Accruals Ratio
Allergan PLC, cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to shareholders | (5,096,400) | (4,125,500) | 14,973,400 | 3,915,200 | (1,630,500) | |
| Less: Net cash provided by operating activities | 5,640,100 | 5,873,400 | 1,425,300 | 4,530,000 | 2,243,000 | |
| Less: Net cash (used in) provided by investing activities | 3,098,500 | (878,000) | 24,333,300 | (37,120,900) | (5,370,600) | |
| Cash-flow-statement-based aggregate accruals | (13,835,000) | (9,120,900) | (10,785,200) | 36,506,100 | 1,497,100 | |
| Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -15.00% | -9.44% | -10.08% | 45.11% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Abbott Laboratories | -5.39% | 12.34% | -6.46% | 4.27% | — | |
| AbbVie Inc. | -23.85% | -12.92% | 16.02% | 59.26% | — | |
| Amgen Inc. | -95.70% | -22.85% | 22.06% | 11.81% | — | |
| Biogen Inc. | 1.91% | 6.65% | 12.70% | 39.81% | — | |
| Bristol-Myers Squibb Co. | -1.14% | -28.29% | 0.76% | 8.10% | — | |
| Celgene Corp. | 34.03% | 4.95% | -7.35% | 55.24% | — | |
| Eli Lilly & Co. | -25.54% | -11.43% | 5.63% | -2.13% | — | |
| Gilead Sciences Inc. | -73.15% | 28.23% | 29.15% | 45.78% | — | |
| Johnson & Johnson | -5.08% | -7.40% | 4.68% | 7.15% | — | |
| Merck & Co. Inc. | -19.26% | -13.29% | -5.97% | -5.73% | — | |
| Pfizer Inc. | -10.12% | 10.69% | -1.06% | -5.98% | — | |
| Regeneron Pharmaceuticals Inc. | 28.32% | 19.22% | 13.64% | 8.37% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals & Biotechnology | -15.74% | -2.28% | 1.73% | 16.40% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | -8.00% | -0.19% | 2.89% | 18.47% | — | |
Based on: 10-K (filing date: 2019-02-15), 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).
1 2018 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -13,835,000 ÷ [(87,021,400 + 97,463,100) ÷ 2] = -15.00%
2 Click competitor name to see calculations.
| 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 deteriorated earnings quality from 2017 to 2018. |