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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- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Operating Profit Margin since 2005
- Price to Sales (P/S) since 2005
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Balance-Sheet-Based Accruals Ratio
May 26, 2019 | May 27, 2018 | May 28, 2017 | May 29, 2016 | May 31, 2015 | May 25, 2014 | ||
---|---|---|---|---|---|---|---|
Operating Assets | |||||||
Total assets | |||||||
Less: Cash and cash equivalents | |||||||
Operating assets | |||||||
Operating Liabilities | |||||||
Total liabilities | |||||||
Less: Current portion of long-term debt | |||||||
Less: Notes payable | |||||||
Less: Long-term debt, excluding current portion | |||||||
Operating liabilities | |||||||
Net operating assets1 | |||||||
Balance-sheet-based aggregate accruals2 | |||||||
Financial Ratio | |||||||
Balance-sheet-based accruals ratio3 | |||||||
Benchmarks | |||||||
Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
Coca-Cola Co. | |||||||
Mondelēz International Inc. | |||||||
PepsiCo Inc. | |||||||
Philip Morris International Inc. |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
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.
The analysis of the annual financial reporting quality measures over the five-year period reveals significant variability and notable trends in the key metrics presented.
- Net operating assets
- The net operating assets displayed moderate fluctuation initially, decreasing from approximately 15.06 billion USD in 2015 to about 13.82 billion USD in 2016. This was followed by a slight recovery to around 14.31 billion USD in 2017. A substantial increase occurred in 2018, reaching roughly 22.69 billion USD, which then slightly declined to 21.96 billion USD in 2019. This pattern indicates a period of contraction followed by significant asset growth, possibly reflecting strategic investments or acquisitions undertaken in 2018.
- Balance-sheet-based aggregate accruals
- The aggregate accruals demonstrated considerable volatility. A negative value indicated in 2015 (-847 million USD) and a further decline in 2016 (-1.24 billion USD) suggest increasing accrual-based adjustments impacting operating assets negatively during that span. In 2017, there was a reversal, with a positive accrual of 492 million USD, followed by a dramatic increase to 8.38 billion USD in 2018. The figure then swung back to a negative value of approximately -729 million USD in 2019. This unstable behavior could signal episodic changes in accounting estimates or timing differences in revenue and expense recognition.
- Balance-sheet-based accruals ratio
- The accruals ratio similarly showed pronounced fluctuations, aligning with the trends observed in aggregate accruals. It decreased from -5.47% in 2015 to its lowest at -8.6% in 2016, then rose to a positive 3.5% in 2017. A significant spike to 45.28% occurred in 2018, indicating an exceptionally high level of accruals relative to net operating assets during that year. The ratio declined sharply to -3.26% in 2019. The erratic nature of this ratio over the period suggests varying degrees of earnings quality and possibly heightened accruals manipulation or irregular operational adjustments in specific years, particularly in 2018.
Overall, the data reveals a period marked by considerable changes in both the scale of net operating assets and the magnitude of accrual accounting adjustments. The large spike in 2018 across both the aggregate accruals and accrual ratio warrants further investigation to understand its drivers and implications on the financial reporting quality. These fluctuations may have a material impact on earnings quality and the reliability of reported operating performance during the analyzed periods.
Cash-Flow-Statement-Based Accruals Ratio
May 26, 2019 | May 27, 2018 | May 28, 2017 | May 29, 2016 | May 31, 2015 | May 25, 2014 | ||
---|---|---|---|---|---|---|---|
Net earnings attributable to General Mills | |||||||
Less: Net cash provided by operating activities | |||||||
Less: Net cash (used) 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 | |||||||
Coca-Cola Co. | |||||||
Mondelēz International Inc. | |||||||
PepsiCo Inc. | |||||||
Philip Morris International Inc. |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
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 exhibit a fluctuating trend over the five-year period. Starting at approximately 15.06 billion US dollars in 2015, there is a decrease to about 13.82 billion in 2016, followed by a slight increase to roughly 14.31 billion in 2017. A significant rise occurs in 2018, reaching 22.69 billion, before a minor decline to 21.96 billion in 2019. This indicates a major accumulation of operating assets in 2018, which slightly receded the following year but remained substantially higher than in earlier years.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show notable volatility. In 2015, the figure is positive at around 281 million US dollars, but it shifts to a negative value of approximately -1.03 billion in 2016. In 2017, the accruals return close to zero at about -9 million US dollars, then experience a sharp increase to 7.98 billion in 2018. In 2019, the aggregate accruals decline again to approximately -498 million. This irregular pattern suggests inconsistent adjustments between operating cash flows and accrual accounting components, particularly with the substantial increase in 2018.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the variability of the aggregate accruals and measures the proportion of accruals relative to net operating assets. It starts modestly positive at 1.81% in 2015, then declines to -7.1% in 2016, indicating the accrual component exceeded cash flows negatively relative to assets. The ratio nears zero in 2017 (-0.06%), suggesting minimal accrual effects that year. A remarkable spike occurs in 2018, reaching 43.11%, which aligns with the large increase in aggregate accruals and net operating assets, implying significant non-cash components influencing reported earnings. The ratio then drops to -2.23% in 2019, showing a reversal toward a negative accrual effect.
- Overall Trends and Insights
- The data reveals considerable fluctuations in both net operating assets and accrual-based measures, with a notable peak in 2018 across all indicators. The sharp increase in net operating assets and accruals ratio in 2018 may suggest an accounting or operational event leading to higher non-cash adjustments impacting reported earnings quality. The volatility in the accruals and accruals ratio over the observed period may indicate varying earnings persistence and potential risk in earnings quality, warranting closer examination of the underlying causes for these fluctuations.