Microsoft Excel LibreOffice Calc

Exxon Mobil Corp. (XOM)

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

Exxon Mobil Corp., balance sheet computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Operating Assets
Total assets 346,196  348,691  330,314  336,758  349,493 
Less: Cash and cash equivalents 3,042  3,177  3,657  3,705  4,616 
Less: Cash and cash equivalents, restricted —  —  —  —  42 
Operating assets 343,154  345,514  326,657  333,053  344,835 
Operating Liabilities
Total liabilities 147,668  154,191  156,484  159,948  168,429 
Less: Notes and loans payable 17,258  17,930  13,830  18,762  17,468 
Less: Long-term debt, excluding due within one year 20,538  24,406  28,932  19,925  11,653 
Operating liabilities 109,872  111,855  113,722  121,261  139,308 
Net operating assets1 233,282  233,659  212,935  211,792  205,527 
Balance-sheet-based aggregate accruals2 (377) 20,724  1,143  6,265  —
Ratio
Balance-sheet-based accruals ratio3 -0.16% 9.28% 0.54% 3.00% —
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% —
EOG Resources Inc. 8.99% 11.98% 2.53% -13.11% —
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: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 343,154 – 109,872 = 233,282

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 233,282 – 233,659 = -377

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -377 ÷ [(233,282 + 233,659) ÷ 2] = -0.16%

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, Exxon Mobil Corp. improved earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

Exxon Mobil Corp., cash flow statement computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income attributable to ExxonMobil 20,840  19,710  7,840  16,150  32,520 
Less: Net cash provided by operating activities 36,014  30,066  22,082  30,344  45,116 
Less: Net cash used in investing activities (16,446) (15,730) (12,403) (23,824) (26,975)
Cash-flow-statement-based aggregate accruals 1,272  5,374  (1,839) 9,630  14,379 
Ratio
Cash-flow-statement-based accruals ratio1 0.54% 2.41% -0.87% 4.62% —
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% —
EOG Resources Inc. 7.96% 11.19% -11.52% -13.85% —
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: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,272 ÷ [(233,282 + 233,659) ÷ 2] = 0.54%

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, Exxon Mobil Corp. improved earnings quality from 2017 to 2018.