.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
Bristol-Myers Squibb 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: Marketable securities | |||||
| | Operating assets | |||||
| Operating Liabilities | ||||||
| | Total liabilities | |||||
| | Less: Short-term debt obligations | |||||
| | 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 | ||||||
| Abbott Laboratories | % | % | % | % | % | |
| AbbVie Inc. | % | % | % | % | % | |
| Allergan PLC | % | % | % | % | % | |
| Amgen Inc. | % | % | % | % | % | |
| Biogen Inc. | % | % | % | % | % | |
| Celgene Corp. | % | % | % | % | % | |
| Eli Lilly & Co. | % | % | % | % | % | |
| Gilead Sciences Inc. | % | % | % | % | % | |
| Johnson & Johnson | % | % | % | % | % | |
| Merck & Co. Inc. | % | % | % | % | % | |
| Pfizer Inc. | % | % | % | % | % | |
| Regeneron Pharmaceuticals Inc. | % | % | % | % | % | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals & Biotechnology | % | % | % | % | % | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | % | % | % | % | % | |
2017 Calculations
1 Net operating assets = Operating assets – Operating liabilities
= – =
2 Balance-sheet-based aggregate accruals = Net operating assets 2017 – Net operating assets 2016
= – =
3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] = %
| 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, Bristol-Myers Squibb Co. deteriorated earnings quality from 2016 to 2017. |
Cash-Flow-Statement-Based Accruals Ratio
Bristol-Myers Squibb 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 attributable to BMS | |||||
| | Less: Net cash provided by operating activities | |||||
| | Less: Net cash (used in) 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 | ||||||
| Abbott Laboratories | % | % | % | % | % | |
| AbbVie Inc. | % | % | % | % | % | |
| Allergan PLC | % | % | % | % | % | |
| Amgen Inc. | % | % | % | % | % | |
| Biogen Inc. | % | % | % | % | % | |
| Celgene Corp. | % | % | % | % | % | |
| Eli Lilly & Co. | % | % | % | % | % | |
| Gilead Sciences Inc. | % | % | % | % | % | |
| Johnson & Johnson | % | % | % | % | % | |
| Merck & Co. Inc. | % | % | % | % | % | |
| Pfizer Inc. | % | % | % | % | % | |
| Regeneron Pharmaceuticals Inc. | % | % | % | % | % | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals & Biotechnology | % | % | % | % | % | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | % | % | % | % | % | |
2017 Calculations
1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] = %
| 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, Bristol-Myers Squibb Co. deteriorated earnings quality from 2016 to 2017. |
