Microsoft Excel LibreOffice Calc

Coca-Cola Co. (KO)


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

Coca-Cola 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 83,216  87,896  87,270  90,093  92,023 
Less: Cash and cash equivalents 8,926  6,006  8,555  7,309  8,958 
Less: Short-term investments 2,025  9,352  9,595  8,322  9,052 
Less: Marketable securities 5,013  5,317  4,051  4,269  3,665 
Operating assets 67,252  67,221  65,069  70,193  70,348 
Operating Liabilities
Total liabilities 64,158  68,919  64,050  64,329  61,462 
Less: Loans and notes payable 13,194  13,205  12,498  13,129  19,130 
Less: Current maturities of long-term debt 4,997  3,298  3,527  2,677  3,552 
Less: Long-term debt, excluding current maturities 25,364  31,182  29,684  28,407  19,063 
Operating liabilities 20,603  21,234  18,341  20,116  19,717 
Net operating assets1 46,649  45,987  46,728  50,077  50,631 
Balance-sheet-based aggregate accruals2 662  (741) (3,349) (554)
Ratio
Balance-sheet-based accruals ratio3 1.43% -1.60% -6.92% -1.10%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
PepsiCo Inc. 15.54% -4.04% -3.94% -12.43%
Balance-Sheet-Based Accruals Ratio, Sector
Beverages 7.33% -2.58% -5.72% -5.79%
Balance-Sheet-Based Accruals Ratio, Industry
Consumer Goods -10.21% 5.70% 4.63% 11.48%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 67,25220,603 = 46,649

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 46,64945,987 = 662

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 662 ÷ [(46,649 + 45,987) ÷ 2] = 1.43%

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, Coca-Cola Co. improved earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

Coca-Cola 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 income attributable to shareowners of The Coca-Cola Company 6,434  1,248  6,527  7,351  7,098 
Less: Net cash provided by operating activities 7,320  6,995  8,796  10,528  10,615 
Less: Net cash (used in) provided by investing activities 6,348  (2,385) (999) (6,186) (7,506)
Cash-flow-statement-based aggregate accruals (7,234) (3,362) (1,270) 3,009  3,989 
Ratio
Cash-flow-statement-based accruals ratio1 -15.62% -7.25% -2.62% 5.98%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
PepsiCo Inc. -4.39% -2.34% 9.41% -4.39%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Beverages -10.92% -5.27% 2.22% 1.69%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Consumer Goods 4.48% 5.92% 8.91% 9.34%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

2018 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -7,234 ÷ [(46,649 + 45,987) ÷ 2] = -15.62%

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, Coca-Cola Co. deteriorated earnings quality from 2017 to 2018.