Microsoft Excel LibreOffice Calc

EOG Resources Inc. (EOG)

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, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Operating Assets
Total assets 33,934,474  29,833,078  29,459,433  26,975,244  34,762,687 
Less: Cash and cash equivalents 1,555,634  834,228  1,599,895  718,506  2,087,213 
Operating assets 32,378,840  28,998,850  27,859,538  26,256,738  32,675,474 
Operating Liabilities
Total liabilities 14,570,286  13,549,805  15,477,852  14,032,209  17,050,105 
Less: Current portion of long-term debt 913,093  356,235  6,579  6,579  6,579 
Less: Long-term debt, excluding current portion 5,170,169  6,030,836  6,979,779  6,653,685  5,903,354 
Operating liabilities 8,487,024  7,162,734  8,491,494  7,371,945  11,140,172 
Net operating assets1 23,891,816  21,836,116  19,368,044  18,884,793  21,535,302 
Balance-sheet-based aggregate accruals2 2,055,700  2,468,072  483,251  (2,650,509) –
Ratio
Balance-sheet-based accruals ratio3 8.99% 11.98% 2.53% -13.11% –
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
Chevron Corp. -1.93% -1.40% 2.56% 5.88% –
ConocoPhillips -2.51% -37.15% -6.18% -10.85% –
Exxon Mobil Corp. -0.16% 9.28% 0.54% 3.00% –
Occidental Petroleum Corp. -0.40% -1.23% 2.77% -18.31% –
Phillips 66 2.51% 9.96% 4.60% 15.33% –
Balance-Sheet-Based Accruals Ratio, Sector
Oil & Gas Producers -0.38% 0.94% 0.89% 1.00% –
Balance-Sheet-Based Accruals Ratio, Industry
Oil & Gas -0.91% 0.32% 1.60% 0.70% –

Based on: 10-K (filing date: 2019-02-26), 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).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 32,378,840 – 8,487,024 = 23,891,816

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 23,891,816 – 21,836,116 = 2,055,700

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,055,700 ÷ [(23,891,816 + 21,836,116) ÷ 2] = 8.99%

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. improved earnings quality from 2017 to 2018.

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, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income (loss) 3,419,040  2,582,579  (1,096,686) (4,524,515) 2,915,487 
Less: Net cash provided by operating activities 7,768,608  4,265,336  2,359,063  3,595,165  8,649,155 
Less: Net cash used in investing activities (6,170,162) (3,987,409) (1,252,944) (5,320,256) (7,513,565)
Cash-flow-statement-based aggregate accruals 1,820,594  2,304,652  (2,202,805) (2,799,424) 1,779,897 
Ratio
Cash-flow-statement-based accruals ratio1 7.96% 11.19% -11.52% -13.85% –
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
Chevron Corp. -1.93% -1.69% 1.91% 5.08% –
ConocoPhillips -7.10% -31.63% -6.85% -5.05% –
Exxon Mobil Corp. 0.54% 2.41% -0.87% 4.62% –
Occidental Petroleum Corp. -1.16% -1.63% 5.75% -18.18% –
Phillips 66 1.41% 7.94% 5.75% 15.39% –
Cash-Flow-Statement-Based Accruals Ratio, Sector
Oil & Gas Producers -0.57% -1.67% -0.24% 2.08% –
Cash-Flow-Statement-Based Accruals Ratio, Industry
Oil & Gas -1.36% -2.33% -1.67% 2.34% –

Based on: 10-K (filing date: 2019-02-26), 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).

2018 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,820,594 ÷ [(23,891,816 + 21,836,116) ÷ 2] = 7.96%

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 2017 to 2018.