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Microsoft Excel LibreOffice Calc

Emerson Electric Co. (EMR)

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

Emerson Electric Co., balance sheet computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013
Operating Assets
Total assets hidden hidden hidden hidden hidden hidden
Less: Cash and equivalents hidden hidden hidden hidden hidden hidden
Operating assets hidden hidden hidden hidden hidden hidden
Operating Liabilities
Total liabilities hidden hidden hidden hidden hidden hidden
Less: Short-term borrowings and current maturities of long-term debt hidden hidden hidden hidden hidden hidden
Less: Long-term debt, excluding current maturities hidden hidden hidden hidden hidden hidden
Operating liabilities hidden hidden hidden hidden hidden hidden
Net operating assets1 hidden hidden hidden hidden hidden hidden
Balance-sheet-based aggregate accruals2 hidden hidden hidden hidden hidden hidden
Ratio
Balance-sheet-based accruals ratio3 hidden hidden hidden hidden hidden hidden
Benchmarks
Balance-Sheet-Based Accruals Ratio, Industry
Industrials hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= hidden – hidden = hidden

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= hidden – hidden = hidden

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

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, Emerson Electric Co. deteriorated earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

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

USD $ in millions

Microsoft Excel LibreOffice Calc
Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013
Net earnings common stockholders hidden hidden hidden hidden hidden hidden
Less: Cash provided by operating activities hidden hidden hidden hidden hidden hidden
Less: Cash (used in) provided by investing activities hidden hidden hidden hidden hidden hidden
Cash-flow-statement-based aggregate accruals hidden hidden hidden hidden hidden hidden
Ratio
Cash-flow-statement-based accruals ratio1 hidden hidden hidden hidden hidden hidden
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

2018 Calculations

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

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, Emerson Electric Co. improved earnings quality from 2017 to 2018.