salesforce.com inc. (CRM)

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
Cash-Flow-Statement-Based Accruals Ratio

Balance-Sheet-Based Accruals Ratio

salesforce.com inc., balance sheet computation of aggregate accruals

USD $ in millions

		Jan 31, 2019	Jan 31, 2018	Jan 31, 2017	Jan 31, 2016	Jan 31, 2015	Jan 31, 2014
	Operating Assets
	Total assets
	Less: Cash and cash equivalents
	Less: Marketable securities
	Operating assets
	Operating Liabilities
	Total liabilities
	Less: Current portion of debt
	Less: Noncurrent debt, excluding current portion
	Operating liabilities

	Net operating assets¹
	Balance-sheet-based aggregate accruals²
	Ratio
	Balance-sheet-based accruals ratio³
	Benchmarks
	Balance-Sheet-Based Accruals Ratio, Competitors
	Adobe Inc.
	Alphabet Inc.
	Facebook Inc.
	International Business Machines Corp.
	Microsoft Corp.
	Oracle Corp.
	Balance-Sheet-Based Accruals Ratio, Sector
	Software & Computer Services
	Balance-Sheet-Based Accruals Ratio, Industry
	Technology

Based on: 10-K (filing date: 2019-03-08), 10-K (filing date: 2018-03-09), 10-K (filing date: 2017-03-06), 10-K (filing date: 2016-03-07), 10-K (filing date: 2015-03-06), 10-K (filing date: 2014-03-05).

2019 Calculations

¹ Net operating assets = Operating assets – Operating liabilities
= hidden – hidden = hidden

² Balance-sheet-based aggregate accruals = Net operating assets ₂₀₁₉ – Net operating assets ₂₀₁₈
= hidden – hidden = hidden

³ Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × hidden ÷ [( hidden + hidden ) ÷ 2] = hidden

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, salesforce.com inc. deteriorated earnings quality from 2018 to 2019.

Cash-Flow-Statement-Based Accruals Ratio

salesforce.com inc., cash flow statement computation of aggregate accruals

USD $ in millions

		Jan 31, 2019	Jan 31, 2018	Jan 31, 2017	Jan 31, 2016	Jan 31, 2015	Jan 31, 2014
	Net income (loss)
	Less: Net cash provided by operating activities
	Less: Net cash used in investing activities
	Cash-flow-statement-based aggregate accruals
	Ratio
	Cash-flow-statement-based accruals ratio¹
	Benchmarks
	Cash-Flow-Statement-Based Accruals Ratio, Competitors
	Adobe Inc.
	Alphabet Inc.
	Facebook Inc.
	International Business Machines Corp.
	Microsoft Corp.
	Oracle Corp.
	Cash-Flow-Statement-Based Accruals Ratio, Sector
	Software & Computer Services
	Cash-Flow-Statement-Based Accruals Ratio, Industry
	Technology

2019 Calculations

¹ Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × hidden ÷ [( hidden + hidden ) ÷ 2] = hidden

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, salesforce.com inc. deteriorated earnings quality from 2018 to 2019.

	salesforce.com inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality