Stock Analysis on Net

Eaton Corp. plc (NYSE:ETN)

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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

Eaton Corp. plc, balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Operating Assets
Total assets 38,432 35,014 34,027 31,824 32,805
Less: Cash 488 294 297 438 370
Less: Short-term investments 2,121 261 271 664 221
Operating assets 35,823 34,459 33,459 30,722 32,214
Operating Liabilities
Total liabilities 19,363 17,940 17,576 16,851 16,672
Less: Short-term debt 8 324 13 1 255
Less: Current portion of long-term debt 1,017 10 1,735 1,047 248
Less: Long-term debt, excluding current portion 8,244 8,321 6,831 7,010 7,819
Operating liabilities 10,094 9,285 8,997 8,793 8,350
 
Net operating assets1 25,729 25,174 24,462 21,929 23,864
Balance-sheet-based aggregate accruals2 555 712 2,533 (1,935)
Financial Ratio
Balance-sheet-based accruals ratio3 2.18% 2.87% 10.92% -8.45%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Boeing Co. -22.39% -12.09% 30.23% 75.78%
Caterpillar Inc. 9.40% 1.82% 4.22% -1.86%
GE Aerospace -50.58% -7.82% -33.29% -8.79%
Honeywell International Inc. 7.21% -1.99% 9.04% 2.69%
Lockheed Martin Corp. 2.60% 15.67% 23.38% 5.01%
RTX Corp. -1.23% 1.57% 1.48% 18.38%
Balance-Sheet-Based Accruals Ratio, Sector
Capital Goods -5.90% -0.33% -0.06% 7.00%
Balance-Sheet-Based Accruals Ratio, Industry
Industrials -2.04% 0.12% 3.77% 5.75%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 35,82310,094 = 25,729

2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 25,72925,174 = 555

3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 555 ÷ [(25,729 + 25,174) ÷ 2] = 2.18%

4 Click competitor name to see calculations.

Financial 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, Eaton Corp. plc improved earnings quality from 2022 to 2023.

Cash-Flow-Statement-Based Accruals Ratio

Eaton Corp. plc, cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Net income attributable to Eaton ordinary shareholders 3,218 2,462 2,144 1,410 2,211
Less: Net cash provided by operating activities 3,624 2,533 2,163 2,944 3,451
Less: Net cash (used in) provided by investing activities (2,575) (1,200) (1,764) 397 (1,866)
Cash-flow-statement-based aggregate accruals 2,169 1,129 1,745 (1,931) 626
Financial Ratio
Cash-flow-statement-based accruals ratio1 8.52% 4.55% 7.52% -8.43%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Boeing Co. -26.69% -50.32% -43.09% 172.40%
Caterpillar Inc. 6.90% 3.26% 5.38% -4.23%
GE Aerospace -8.42% -15.92% -53.22% -20.57%
Honeywell International Inc. 5.80% -0.79% 2.16% -1.79%
Lockheed Martin Corp. 3.08% -1.36% -10.24% 4.50%
RTX Corp. -1.66% 0.87% -1.96% -12.62%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Capital Goods -0.94% -5.98% -13.86% -1.61%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials 1.33% -4.47% -8.82% -2.05%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,169 ÷ [(25,729 + 25,174) ÷ 2] = 8.52%

2 Click competitor name to see calculations.

Financial 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, Eaton Corp. plc deteriorated earnings quality from 2022 to 2023.