Microsoft Excel LibreOffice Calc

Target Corp. (TGT)


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

Target Corp., balance sheet computation of aggregate accruals

USD $ in millions

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 41,290  38,999  37,431  40,262  41,404  44,553 
Less: Cash and cash equivalents 1,556  2,643  2,512  4,046  2,210  695 
Operating assets 39,734  36,356  34,919  36,216  39,194  43,858 
Operating Liabilities
Total liabilities 29,993  27,290  26,478  27,305  27,407  28,322 
Less: Current portion of long-term debt and other borrowings 1,052  270  1,718  815  91  1,160 
Less: Long-term debt and other borrowings, excluding current portion 10,223  11,317  11,031  11,945  12,705  12,622 
Operating liabilities 18,718  15,703  13,729  14,545  14,611  14,540 
Net operating assets1 21,016  20,653  21,190  21,671  24,583  29,318 
Balance-sheet-based aggregate accruals2 363  (537) (481) (2,912) (4,735)
Ratio
Balance-sheet-based accruals ratio3 1.74% -2.57% -2.24% -12.59% -17.57%
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%
TJX Cos. Inc. 3.29% 23.01% -6.47% 11.27% 1.69%
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: 2019-03-13), 10-K (filing date: 2018-03-14), 10-K (filing date: 2017-03-08), 10-K (filing date: 2016-03-11), 10-K (filing date: 2015-03-13), 10-K (filing date: 2014-03-14).

2019 Calculations

1 Net operating assets = Operating assets – Operating liabilities
= 39,73418,718 = 21,016

2 Balance-sheet-based aggregate accruals = Net operating assets 2019 – Net operating assets 2018
= 21,01620,653 = 363

3 Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 363 ÷ [(21,016 + 20,653) ÷ 2] = 1.74%

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, Target Corp. improved earnings quality from 2018 to 2019.

Cash-Flow-Statement-Based Accruals Ratio

Target Corp., cash flow statement computation of aggregate accruals

USD $ in millions

Microsoft Excel LibreOffice Calc
Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014
Net earnings (loss) 2,937  2,934  2,737  3,363  (1,636) 1,971 
Less: Cash provided by operations 5,970  6,849  5,329  5,140  5,131  6,520 
Less: Cash (required for) provided by investing activities (3,416) (3,075) (1,473) 489  (1,605) (271)
Cash-flow-statement-based aggregate accruals 383  (840) (1,119) (2,266) (5,162) (4,278)
Ratio
Cash-flow-statement-based accruals ratio1 1.84% -4.02% -5.22% -9.80% -19.15%
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%
TJX Cos. Inc. -9.68% 16.13% -2.63% 12.23% 5.23%
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: 2019-03-13), 10-K (filing date: 2018-03-14), 10-K (filing date: 2017-03-08), 10-K (filing date: 2016-03-11), 10-K (filing date: 2015-03-13), 10-K (filing date: 2014-03-14).

2019 Calculations

1 Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 383 ÷ [(21,016 + 20,653) ÷ 2] = 1.84%

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, Target Corp. improved earnings quality from 2018 to 2019.