Microsoft Excel LibreOffice Calc

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

Boeing Co., balance sheet computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Operating Assets
Total assets 117,359  92,333  89,997  94,408  99,198 
Less: Cash and cash equivalents 7,637  8,813  8,801  11,302  11,733 
Less: Short-term and other investments 927  1,179  1,228  750  1,359 
Operating assets 108,795  82,341  79,968  82,356  86,106 
Operating Liabilities
Total liabilities 116,949  91,921  89,120  88,011  90,408 
Less: Short-term debt and current portion of long-term debt 3,190  1,335  384  1,234  929 
Less: Long-term debt, excluding current portion 10,657  9,782  9,568  8,730  8,141 
Operating liabilities 103,102  80,804  79,168  78,047  81,338 
Net operating assets1 5,693  1,537  800  4,309  4,768 
Balance-sheet-based aggregate accruals2 4,156  737  (3,509) (459) –
Ratio
Balance-sheet-based accruals ratio3 114.97% 63.07% -137.37% -10.11% –
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
General Dynamics Corp. 60.37% -0.77% 9.87% 0.00% –
Lockheed Martin Corp. 31.19% -26.23% -20.54% 72.03% –
Northrop Grumman Corp. 61.81% 12.46% 0.60% 4.51% –
Raytheon Co. 9.47% -2.62% -2.91% 21.45% –
United Technologies Corp. 46.18% 7.98% 8.80% -11.04% –
Balance-Sheet-Based Accruals Ratio, Sector
Aerospace & Defense 46.91% 2.27% -2.03% 7.04% –
Balance-Sheet-Based Accruals Ratio, Industry
Industrials 4.94% 8.49% -15.11% -22.63% –

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 108,795 – 103,102 = 5,693

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 5,693 – 1,537 = 4,156

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 4,156 ÷ [(5,693 + 1,537) ÷ 2] = 114.97%

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. deteriorated earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

Boeing Co., cash flow statement computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net earnings related to parent 10,460  8,197  4,895  5,176  5,446 
Less: Net cash provided by operating activities 15,322  13,344  10,499  9,363  8,858 
Less: Net cash (used) provided by investing activities (4,621) (2,062) (3,380) (1,846) 2,467 
Cash-flow-statement-based aggregate accruals (241) (3,085) (2,224) (2,341) (5,879)
Ratio
Cash-flow-statement-based accruals ratio1 -6.67% -264.01% -87.06% -51.58% –
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
General Dynamics Corp. 58.57% -1.41% 9.91% 2.34% –
Lockheed Martin Corp. 23.33% -26.78% 7.01% 64.89% –
Northrop Grumman Corp. 51.59% 2.79% 1.97% 2.72% –
Raytheon Co. 0.02% 0.77% -5.49% 12.72% –
United Technologies Corp. 24.46% 4.03% 2.60% 7.67% –
Cash-Flow-Statement-Based Accruals Ratio, Sector
Aerospace & Defense 29.18% -4.40% 0.73% 12.00% –
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials 0.53% -2.18% -8.32% -6.18% –

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -241 ÷ [(5,693 + 1,537) ÷ 2] = -6.67%

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. improved earnings quality from 2017 to 2018.