Boeing Co. (BA)

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
Cash-Flow-Statement-Based Accruals Ratio

Balance-Sheet-Based Accruals Ratio

Boeing Co., balance sheet computation of aggregate accruals

USD $ in millions

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Operating Assets
Total assets
Less: Cash and cash equivalents
Less: Short-term and other investments
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term debt and current portion of long-term debt
Less: Long-term debt, excluding current portion
Operating liabilities

Net operating assets¹
Balance-sheet-based aggregate accruals²
Ratio
Balance-sheet-based accruals ratio³	%	%	%	%	%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
General Dynamics Corp.	%	%	%	%	%
Lockheed Martin Corp.	%	%	%	%	%
Northrop Grumman Corp.	%	%	%	%	%
Raytheon Co.	%	%	%	%	%
United Technologies Corp.	%	%	%	%	%
Balance-Sheet-Based Accruals Ratio, Sector
Aerospace & Defense	%	%	%	%	%
Balance-Sheet-Based Accruals Ratio, Industry
Industrials	%	%	%	%	%

2017 Calculations

¹ Net operating assets = Operating assets – Operating liabilities
= hidden – hidden = hidden

² Balance-sheet-based aggregate accruals = Net operating assets ₂₀₁₇ – Net operating assets ₂₀₁₆
= hidden – hidden = hidden

³ Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × hidden ÷ [( hidden + hidden ) ÷ 2] = hidden %

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, Boeing Co. improved earnings quality from 2016 to 2017.

Cash-Flow-Statement-Based Accruals Ratio

Boeing Co., cash flow statement computation of aggregate accruals

USD $ in millions

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Net earnings related to parent
Less: Net cash provided by operating activities
Less: Net cash (used) provided by investing activities
Cash-flow-statement-based aggregate accruals
Ratio
Cash-flow-statement-based accruals ratio¹	%	%	%	%	%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
General Dynamics Corp.	%	%	%	%	%
Lockheed Martin Corp.	%	%	%	%	%
Northrop Grumman Corp.	%	%	%	%	%
Raytheon Co.	%	%	%	%	%
United Technologies Corp.	%	%	%	%	%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Aerospace & Defense	%	%	%	%	%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials	%	%	%	%	%

2017 Calculations

¹ Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × hidden ÷ [( hidden + hidden ) ÷ 2] = hidden %

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, Boeing Co. deteriorated earnings quality from 2016 to 2017.

	Boeing Co.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

	All companies
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality