Microsoft Excel LibreOffice Calc

TJX Cos. Inc. (TJX)

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

TJX Cos. Inc., balance sheet computation of aggregate accruals

USD $ in thousands

Microsoft Excel LibreOffice Calc
Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014
Operating Assets
Total assets 14,326,029  14,058,015  12,883,808  11,499,482  11,128,381  10,201,022 
Less: Cash and cash equivalents 3,030,229  2,758,477  2,929,849  2,095,473  2,493,775  2,149,746 
Less: Short-term investments —  506,165  543,242  352,313  282,623  294,702 
Operating assets 11,295,800  10,793,373  9,410,717  9,051,696  8,351,983  7,756,574 
Operating Liabilities
Total liabilities 9,277,423  8,909,706  8,373,209  7,192,407  6,864,151  5,971,129 
Less: Long-term debt 2,233,616  2,230,607  2,227,599  1,624,054  1,623,864  1,274,216 
Operating liabilities 7,043,807  6,679,099  6,145,610  5,568,353  5,240,287  4,696,913 
Net operating assets1 4,251,993  4,114,274  3,265,107  3,483,343  3,111,696  3,059,661 
Balance-sheet-based aggregate accruals2 137,719  849,167  (218,236) 371,647  52,035  —
Ratio
Balance-sheet-based accruals ratio3 3.29% 23.01% -6.47% 11.27% 1.69% —
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors
Amazon.com Inc. — 23.18% 99.50% 20.86% 16.64% —
Costco Wholesale Corp. — 3.79% -6.51% 18.80% 2.66% 3.67%
eBay Inc. — -14.19% -1.10% 52.38% -82.82% —
Home Depot Inc. 2.61% -2.02% -0.07% 2.47% -2.08% —
Lowe’s Cos. Inc. -14.72% 3.22% 9.18% -5.72% -4.96% —
Netflix Inc. — 47.69% 50.97% 61.45% 66.11% —
Target Corp. 1.74% -2.57% -2.24% -12.59% -17.57% —
Walmart Inc. 7.50% 0.79% -4.36% -1.78% -3.86% —
Balance-Sheet-Based Accruals Ratio, Sector
General Retailers 0.00% 5.74% 9.97% 2.82% -7.62% —
Balance-Sheet-Based Accruals Ratio, Industry
Consumer Services 0.00% 15.50% 7.81% 15.63% 7.23% —

Based on: 10-K (filing date: 2019-04-03), 10-K (filing date: 2018-04-04), 10-K (filing date: 2017-03-28), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-04-01).

2019 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 11,295,800 – 7,043,807 = 4,251,993

2 Balance-sheet-based aggregate accruals = Net operating assets 2019 – Net operating assets 2018
= 4,251,993 – 4,114,274 = 137,719

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 137,719 ÷ [(4,251,993 + 4,114,274) ÷ 2] = 3.29%

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, TJX Cos. Inc. improved earnings quality from 2018 to 2019.

Cash-Flow-Statement-Based Accruals Ratio

TJX Cos. Inc., cash flow statement computation of aggregate accruals

USD $ in thousands

Microsoft Excel LibreOffice Calc
Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014
Net income 3,059,798  2,607,948  2,298,234  2,277,658  2,215,128  2,137,396 
Less: Net cash provided by operating activities 4,088,459  3,025,624  3,601,894  2,937,343  3,008,369  2,590,329 
Less: Net cash used in investing activities (623,552) (1,012,736) (1,214,878) (1,063,115) (954,637) (1,035,631)
Cash-flow-statement-based aggregate accruals (405,109) 595,060  (88,782) 403,430  161,396  582,698 
Ratio
Cash-flow-statement-based accruals ratio1 -9.68% 16.13% -2.63% 12.23% 5.23% —
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors
Amazon.com Inc. — -17.91% 45.50% -33.79% -47.47% —
Costco Wholesale Corp. — 2.52% -13.60% 12.02% 5.48% 1.65%
eBay Inc. — -26.52% -23.33% 65.87% -3.88% —
Home Depot Inc. 1.98% -4.67% -0.96% 2.46% -2.50% —
Lowe’s Cos. Inc. -13.55% -0.81% 4.08% -4.44% -5.37% —
Netflix Inc. — 44.39% 39.94% 48.86% 61.24% —
Target Corp. 1.84% -4.02% -5.22% -9.80% -19.15% —
Walmart Inc. 2.36% -7.84% -3.19% -1.60% -0.83% —
Cash-Flow-Statement-Based Accruals Ratio, Sector
General Retailers 0.00% -6.56% 2.26% 0.47% -4.81% —
Cash-Flow-Statement-Based Accruals Ratio, Industry
Consumer Services 0.00% 6.48% 3.97% 2.74% 3.79% —

Based on: 10-K (filing date: 2019-04-03), 10-K (filing date: 2018-04-04), 10-K (filing date: 2017-03-28), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-04-01).

2019 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -405,109 ÷ [(4,251,993 + 4,114,274) ÷ 2] = -9.68%

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, TJX Cos. Inc. improved earnings quality from 2018 to 2019.