Stock Analysis on Net
Stock Analysis on Net

International Business Machines Corp. (NYSE:IBM)

Financial Reporting Quality: Aggregate Accruals

Advanced level

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

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Operating Assets
Total assets 152,186  123,382  125,356  117,470  110,495 
Less: Cash and cash equivalents 8,172  11,379  11,972  7,826  7,686 
Less: Restricted cash 141  225  262  —  — 
Less: Marketable securities 696  618  608  701  508 
Operating assets 143,177  111,160  112,514  108,943  102,301 
Operating Liabilities
Total liabilities 131,202  106,452  107,631  99,078  96,071 
Less: Short-term debt 8,797  10,207  6,987  7,513  6,461 
Less: Long-term debt, excluding current maturities 54,102  35,605  39,837  34,655  33,428 
Operating liabilities 68,303  60,640  60,807  56,910  56,182 
 
Net operating assets1 74,874  50,520  51,707  52,033  46,119 
Balance-sheet-based aggregate accruals2 24,354  (1,187) (326) 5,914 
Financial Ratio
Balance-sheet-based accruals ratio3 38.84% -2.32% -0.63% 12.05%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Adobe Inc. 2.25% 77.63% -0.97% -7.49% 7.81%
Alphabet Inc. 17.40% 28.17% -3.66% 7.61%
Autodesk Inc. 197.08% -191.79% -90.11% -9.31%
Facebook Inc. 8.16% 27.43% 9.27% 13.83%
Intuit Inc. 29.27% 1.03% -1.49% -4.87%
Microsoft Corp. 47.05% -1.64% 69.19% -40.94%
Oracle Corp. 2.79% -15.16% 25.88% -3.24%
salesforce.com inc. 74.65% -10.22% 38.26% 13.00%
ServiceNow Inc. 121.81% 234.32% -207.79%
Balance-Sheet-Based Accruals Ratio, Sector
Software & Computer Services 24.24% 10.66% 12.32% 3.19%
Balance-Sheet-Based Accruals Ratio, Industry
Technology 6.22% 2.01% 12.50% 10.58%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

1 2019 Calculation
Net operating assets = Operating assets – Operating liabilities
= 143,17768,303 = 74,874

2 2019 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2019 – Net operating assets2018
= 74,87450,520 = 24,354

3 2019 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 24,354 ÷ [(74,874 + 50,520) ÷ 2] = 38.84%

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. deteriorated earnings quality from 2018 to 2019.

Cash-Flow-Statement-Based Accruals Ratio

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

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net income attributable to IBM 9,431  8,728  5,753  11,872  13,190 
Less: Net cash provided by operating activities 14,770  15,247  16,724  16,958  17,008 
Less: Net cash used in investing activities (26,936) (4,913) (7,096) (10,976) (8,159)
Cash-flow-statement-based aggregate accruals 21,597  (1,606) (3,875) 5,890  4,341 
Financial Ratio
Cash-flow-statement-based accruals ratio1 34.45% -3.14% -7.47% 12.00%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Adobe Inc. -9.78% 43.94% -17.08% -1.50% 13.69%
Alphabet Inc. 11.73% 17.73% 12.54% 26.77%
Autodesk Inc. 54.30% -648.67% -173.41% 7.24%
Facebook Inc. 4.54% 11.74% 37.69% 21.02%
Intuit Inc. -15.95% -34.47% -50.61% -71.57%
Microsoft Corp. 8.59% -83.67% 149.68% 47.44%
Oracle Corp. -74.80% -13.86% 40.94% 1.37%
salesforce.com inc. 28.72% -8.64% 11.45% -3.70%
ServiceNow Inc. 16.38% -387.26% -427.40%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Software & Computer Services 2.80% -5.23% 27.74% 16.84%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Technology -8.33% -12.73% 14.50% 15.81%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23).

1 2019 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 21,597 ÷ [(74,874 + 50,520) ÷ 2] = 34.45%

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. deteriorated earnings quality from 2018 to 2019.