Microsoft Excel LibreOffice Calc

Phillips 66 (PSX)

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

Phillips 66, 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 54,302  54,371  51,653  48,580  48,741 
Less: Cash and cash equivalents 3,019  3,119  2,711  3,074  5,207 
Operating assets 51,283  51,252  48,942  45,506  43,534 
Operating Liabilities
Total liabilities 27,149  26,943  27,928  24,642  26,704 
Less: Short-term debt 67  41  550  44  842 
Less: Long-term debt 11,093  10,069  9,588  8,843  7,842 
Operating liabilities 15,989  16,833  17,790  15,755  18,020 
Net operating assets1 35,294  34,419  31,152  29,751  25,514 
Balance-sheet-based aggregate accruals2 875  3,267  1,401  4,237  —
Ratio
Balance-sheet-based accruals ratio3 2.51% 9.96% 4.60% 15.33% —
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% —
Exxon Mobil Corp. -0.16% 9.28% 0.54% 3.00% —
Occidental Petroleum Corp. -0.40% -1.23% 2.77% -18.31% —
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: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 51,283 – 15,989 = 35,294

2 Balance-sheet-based aggregate accruals = Net operating assets 2018 – Net operating assets 2017
= 35,294 – 34,419 = 875

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 875 ÷ [(35,294 + 34,419) ÷ 2] = 2.51%

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, Phillips 66 improved earnings quality from 2017 to 2018.

Cash-Flow-Statement-Based Accruals Ratio

Phillips 66, 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 Phillips 66 5,595  5,106  1,555  4,227  4,762 
Less: Net cash provided by operating activities 7,573  3,648  2,963  5,713  3,527 
Less: Net cash used in investing activities (2,471) (1,146) (3,158) (5,738) (2,294)
Cash-flow-statement-based aggregate accruals 493  2,604  1,750  4,252  3,529 
Ratio
Cash-flow-statement-based accruals ratio1 1.41% 7.94% 5.75% 15.39% —
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% —
Exxon Mobil Corp. 0.54% 2.41% -0.87% 4.62% —
Occidental Petroleum Corp. -1.16% -1.63% 5.75% -18.18% —
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: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-20).

2018 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 493 ÷ [(35,294 + 34,419) ÷ 2] = 1.41%

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, Phillips 66 improved earnings quality from 2017 to 2018.