Stock Analysis on Net
Stock Analysis on Net

Emerson Electric Co. (NYSE:EMR)

$22.49

This company has been moved to the archive! The financial data has not been updated since April 24, 2020.

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.

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Balance-Sheet-Based Accruals Ratio

Emerson Electric Co., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014
Operating Assets
Total assets
Less: Cash and equivalents
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term borrowings and current maturities of long-term debt
Less: Long-term debt, excluding current maturities
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Boeing Co.
Caterpillar Inc.
Eaton Corp. plc
GE Aerospace
Honeywell International Inc.
Lockheed Martin Corp.
RTX Corp.

Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).

1 2019 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =

2 2019 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2019 – Net operating assets2018
= – =

3 2019 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =

4 Click competitor name to see calculations.

Net Operating Assets
The net operating assets decreased steadily from 11,916 million USD in 2015 to 10,364 million USD in 2017, reflecting a reduction in operational capital during this period. This trend reversed in 2018, with a significant increase to 12,657 million USD, followed by a slight decline to 12,500 million USD in 2019, indicating a recovery phase and stabilization of asset levels.
Balance-sheet-based Aggregate Accruals
This metric displayed a negative trend from 2015 through 2017, moving from -1,126 million USD to -718 million USD, indicating a gradual reduction in accrual-related liabilities or adjustments. In 2018, there was a pronounced reversal, with the accruals rising sharply to 2,293 million USD, suggesting a substantial increase in non-cash adjustments or potential recognition of deferred expenses or revenues. The following year, 2019, saw a return to a negative figure of -157 million USD, indicating a partial normalization but still notable volatility in accruals.
Balance-sheet-based Accruals Ratio
Mirroring the aggregate accruals, the accruals ratio showed a continuous decline from -9.02% in 2015 to -6.7% in 2017, consistent with diminishing accrual activity relative to net operating assets. In 2018, the ratio reversed dramatically to a positive 19.92%, signaling an unusual and significant accrual activity compared to the asset base, likely reflecting exceptional accounting events or changes in recognition policies. By 2019, the ratio adjusted closer to zero at -1.25%, demonstrating a reversion to a more normalized balance between accruals and net operating assets, yet with residual negative pressure.
Summary of Trends
The data reflects a period of relative contraction in net operating assets and accruals from 2015 through 2017, followed by a year of unusual and significant accrual activity in 2018. This spike suggests noteworthy accounting or operational events impacting non-cash adjustments. The adjustments seen in 2019 point to a partial stabilization but also continued sensitivity in accrual-related measures. Overall, the financial reporting quality as indicated by accrual measures shows variability with a notable outlier year, which may warrant further investigation into the underlying causes.

Cash-Flow-Statement-Based Accruals Ratio

Emerson Electric Co., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014
Net earnings common stockholders
Less: Cash provided by operating activities
Less: Cash (used in) provided by investing activities
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Boeing Co.
Caterpillar Inc.
Eaton Corp. plc
GE Aerospace
Honeywell International Inc.
Lockheed Martin Corp.
RTX Corp.

Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).

1 2019 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =

2 Click competitor name to see calculations.

Net Operating Assets
The net operating assets exhibited a declining trend from 2015 to 2017, decreasing from 11,916 million USD to 10,364 million USD. In 2018, there was a significant reversal as the figure increased sharply to 12,657 million USD, followed by a slight decline to 12,500 million USD in 2019. Overall, the net operating assets showed a temporary dip in the middle of the period with a recovery toward the end.
Cash-Flow-Statement-Based Aggregate Accruals
The aggregate accruals were negative for the first two years, recorded at -410 million USD in 2015 and -315 million USD in 2016, indicating possible cash flow outflows relative to earnings. A substantial positive swing occurred in 2017 and 2018, with accruals rising dramatically to 2,361 million USD and 2,031 million USD, respectively. In 2019, aggregate accruals declined substantially to 474 million USD but remained positive. This pattern suggests considerable fluctuations in accrual accounting adjustments during the period, with notable peaks in the middle years.
Cash-Flow-Statement-Based Accruals Ratio
The accruals ratio, expressed as a percentage, aligns with the aggregate accruals' pattern. It began at negative values, -3.29% in 2015 and -2.74% in 2016, then increased sharply to 22.02% in 2017 and moderated slightly to 17.64% in 2018. By 2019, the ratio decreased significantly to 3.77%, indicating reduced accrual relative to operating cash flow. The considerable volatility in this ratio reflects fluctuating earnings quality and accrual accounting practices over the observed period.