Stock Analysis on Net

International Business Machines Corp. (NYSE:IBM)

Financial Reporting Quality: Aggregate Accruals 

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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

International Business Machines Corp., balance sheet computation of aggregate accruals

US$ in millions

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Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Operating Assets
Total assets 132,001  155,971  152,186  123,382  125,356 
Less: Cash and cash equivalents 6,650  13,212  8,172  11,379  11,972 
Less: Restricted cash 307  463  141  225  262 
Less: Marketable securities 600  600  696  618  608 
Operating assets 124,444  141,696  143,177  111,160  112,514 
Operating Liabilities
Total liabilities 113,005  135,244  131,202  106,452  107,631 
Less: Short-term debt 6,787  7,183  8,797  10,207  6,987 
Less: Long-term debt, excluding current maturities 44,917  54,355  54,102  35,605  39,837 
Operating liabilities 61,301  73,706  68,303  60,640  60,807 
 
Net operating assets1 63,143  67,990  74,874  50,520  51,707 
Balance-sheet-based aggregate accruals2 (4,847) (6,884) 24,354  (1,187) — 
Financial Ratio
Balance-sheet-based accruals ratio3 -7.39% -9.64% 38.84% -2.32%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Accenture PLC 27.93% 3.73% 42.14% 1.41% 51.55%
Adobe Inc. 14.14% 8.20% 2.25% 77.63% -0.97%
Automatic Data Processing Inc.
Intuit Inc. 139.73% -1.39% 29.27% 1.03% -1.49%
Mastercard Inc. 53.84% 25.41% 91.82% 13.74%
Microsoft Corp. 40.52% 14.41% 46.31% 4.67% 72.10%
Oracle Corp. 5.62% 1.35% 2.79% -15.16%
PayPal Holdings Inc.
Salesforce Inc. 10.87% 65.87% 71.99% -11.13%
ServiceNow Inc. 34.89% 19.95% 121.81% 234.32%
Visa Inc. -1.58% 2.71% 1.03% 1.56% -6.20%
Balance-Sheet-Based Accruals Ratio, Sector
Software & Services 16.26% 7.51% 33.82% -3.25%
Balance-Sheet-Based Accruals Ratio, Industry
Information Technology 21.30% 2.65% 5.75% -3.22%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 2021 Calculation
Net operating assets = Operating assets – Operating liabilities
= 124,44461,301 = 63,143

2 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2021 – Net operating assets2020
= 63,14367,990 = -4,847

3 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -4,847 ÷ [(63,143 + 67,990) ÷ 2] = -7.39%

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, International Business Machines Corp. improved earnings quality from 2020 to 2021.

Cash-Flow-Statement-Based Accruals Ratio

International Business Machines Corp., cash flow statement computation of aggregate accruals

US$ in millions

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Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Net income attributable to IBM 5,743  5,590  9,431  8,728  5,753 
Less: Net cash provided by operating activities 12,796  18,197  14,770  15,247  16,724 
Less: Net cash used in investing activities (5,975) (3,028) (26,936) (4,913) (7,096)
Cash-flow-statement-based aggregate accruals (1,078) (9,579) 21,597  (1,606) (3,875)
Financial Ratio
Cash-flow-statement-based accruals ratio1 -1.64% -13.41% 34.45% -3.14%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Accenture PLC 11.80% -13.65% -1.28% -12.70% 15.84%
Adobe Inc. 9.21% -0.48% -9.78% 43.94% -17.08%
Automatic Data Processing Inc.
Intuit Inc. 58.72% -34.22% -15.95% -34.47% -50.61%
Mastercard Inc. 52.06% 19.04% 47.01% 8.38%
Microsoft Corp. 17.68% -8.19% 7.37% -73.75% 137.66%
Oracle Corp. 25.81% -31.35% -74.80% -13.86%
PayPal Holdings Inc.
Salesforce Inc. 10.57% -5.62% 28.07% -8.23%
ServiceNow Inc. -21.14% -12.82% 16.38% -387.26%
Visa Inc. -7.43% -2.71% -0.31% 1.88% -8.84%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Software & Services 15.79% -8.82% 1.78% -19.91%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Information Technology 12.03% -6.35% -10.84% -17.98%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 2021 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,078 ÷ [(63,143 + 67,990) ÷ 2] = -1.64%

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, International Business Machines Corp. improved earnings quality from 2020 to 2021.