Financial Reporting Quality: Aggregate Accruals
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
AstraZeneca PLC, balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 58,595) | 55,899) | 53,534) | 52,830) | 56,127) | |
| Less: Other investments | 795) | 796) | 823) | 4,248) | 1,482) | |
| Less: Cash and cash equivalents | 6,360) | 9,217) | 7,701) | 7,571) | 11,068) | |
| Operating assets | 51,440) | 45,886) | 45,010) | 41,011) | 43,577) | |
| Operating Liabilities | ||||||
| Total liabilities | 38,949) | 32,646) | 29,582) | 29,358) | 32,717) | |
| Less: Current interest-bearing loans and borrowings | 2,446) | 1,788) | 901) | 1,990) | 125) | |
| Less: Non-current interest-bearing loans and borrowings | 8,397) | 8,588) | 9,409) | 7,338) | 9,097) | |
| Operating liabilities | 28,106) | 22,270) | 19,272) | 20,030) | 23,495) | |
| Net operating assets1 | 23,334) | 23,616) | 25,738) | 20,981) | 20,082) | |
| Balance-sheet-based aggregate accruals2 | (282) | (2,122) | 4,757) | 899) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -1.20% | -8.60% | 20.36% | 4.38% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Zoetis Inc. | — | — | — | — | — | |
Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).
1 2014 Calculation
Net operating assets = Operating assets – Operating liabilities
= 51,440 – 28,106 = 23,334
2 2014 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2014 – Net operating assets2013
= 23,334 – 23,616 = -282
3 2014 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -282 ÷ [(23,334 + 23,616) ÷ 2] = -1.20%
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, AstraZeneca PLC improved earnings quality from 2013 to 2014. |
Cash-Flow-Statement-Based Accruals Ratio
AstraZeneca PLC, cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Profit attributable to owners of the Parent | 1,233) | 2,556) | 6,297) | 9,983) | 8,053) | |
| Less: Net cash inflow from operating activities | 7,198) | 7,514) | 7,100) | 7,992) | 10,854) | |
| Less: Net cash outflow from investing activities | (7,172) | (3,003) | (2,011) | (2,193) | (2,400) | |
| Cash-flow-statement-based aggregate accruals | 1,207) | (1,955) | 1,208) | 4,184) | (401) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 5.14% | -7.92% | 5.17% | 20.38% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Zoetis Inc. | — | — | — | — | — | |
Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).
1 2014 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,207 ÷ [(23,334 + 23,616) ÷ 2] = 5.14%
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, AstraZeneca PLC improved earnings quality from 2013 to 2014. |