Microsoft Excel LibreOffice Calc

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

EOG Resources Inc., balance sheet computation of aggregate accruals

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Operating Assets
Total assets 29,833,078  29,459,433  26,975,244  34,762,687  30,574,238 
Less: Cash and cash equivalents 834,228  1,599,895  718,506  2,087,213  1,318,209 
Operating assets 28,998,850  27,859,538  26,256,738  32,675,474  29,256,029 
Operating Liabilities
Total liabilities 13,549,805  15,477,852  14,032,209  17,050,105  15,155,779 
Less: Current portion of long-term debt 356,235  6,579  6,579  6,579  6,579 
Less: Long-term debt, excluding current portion 6,030,836  6,979,779  6,653,685  5,903,354  5,906,642 
Operating liabilities 7,162,734  8,491,494  7,371,945  11,140,172  9,242,558 
Net operating assets1 21,836,116  19,368,044  18,884,793  21,535,302  20,013,471 
Balance-sheet-based aggregate accruals2 2,468,072  483,251  (2,650,509) 1,521,831 
Ratio
Balance-sheet-based accruals ratio3 11.98% 2.53% -13.11% 7.33%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
Chevron Corp. -1.40% 2.56% 5.88% 10.12%
ConocoPhillips -37.15% -6.18% -10.85% 3.11%
Exxon Mobil Corp. 9.28% 0.54% 3.00% 3.59%
Occidental Petroleum Corp. -1.23% 2.77% -18.31% -31.96%
Phillips 66 9.96% 4.60% 15.33% 9.73%
Balance-Sheet-Based Accruals Ratio, Sector
Oil & Gas Producers 0.94% 0.89% 1.00% 3.24%
Balance-Sheet-Based Accruals Ratio, Industry
Oil & Gas 0.19% 1.12% 0.52% 4.93%

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-18), 10-K (filing date: 2014-02-24).

2017 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 28,998,8507,162,734 = 21,836,116

2 Balance-sheet-based aggregate accruals = Net operating assets 2017 – Net operating assets 2016
= 21,836,11619,368,044 = 2,468,072

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,468,072 ÷ [(21,836,116 + 19,368,044) ÷ 2] = 11.98%

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, EOG Resources Inc. deteriorated earnings quality from 2016 to 2017.

Cash-Flow-Statement-Based Accruals Ratio

EOG Resources Inc., cash flow statement computation of aggregate accruals

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income (loss) 2,582,579  (1,096,686) (4,524,515) 2,915,487  2,197,109 
Less: Net cash provided by operating activities 4,265,336  2,359,063  3,595,165  8,649,155  7,329,414 
Less: Net cash used in investing activities (3,987,409) (1,252,944) (5,320,256) (7,513,565) (6,314,778)
Cash-flow-statement-based aggregate accruals 2,304,652  (2,202,805) (2,799,424) 1,779,897  1,182,473 
Ratio
Cash-flow-statement-based accruals ratio1 11.19% -11.52% -13.85% 8.57%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
Chevron Corp. -1.69% 1.91% 5.08% 10.86%
ConocoPhillips -31.63% -6.85% -5.05% 7.79%
Exxon Mobil Corp. 2.41% -0.87% 4.62% 7.12%
Occidental Petroleum Corp. -1.63% 5.75% -18.18% -4.97%
Phillips 66 7.94% 5.75% 15.39% 14.50%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Oil & Gas Producers -1.67% -0.24% 2.08% 7.84%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Oil & Gas -2.41% -2.12% 2.06% 6.86%

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-18), 10-K (filing date: 2014-02-24).

2017 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,304,652 ÷ [(21,836,116 + 19,368,044) ÷ 2] = 11.19%

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, EOG Resources Inc. improved earnings quality from 2016 to 2017.