Question

Should I be concerned about earnings quality based on these balance-sheet based accruals, based on trend analysis:

Walmart Inc., balance sheet computation of aggregate accruals
USD $ in millions
	Jan 31, 2018	Jan 31, 2017	Jan 31, 2016	Jan 31, 2015	Jan 31, 2014
Operating Assets
Total assets	204,522	198,825	199,581	203,706	204,751
Less: Cash and cash equivalents	6,756	6,867	8,705	9,135	7,281
Operating assets	197,766	191,958	190,876	194,571	197,470
Operating Liabilities
Total liabilities	123,700	118,290	115,970	117,769	121,921
Less: Short-term borrowings	5,257	1,099	2,708	1,592	7,670
Less: Long-term debt due within one year	3,738	2,256	2,745	4,810	4,103
Less: Capital lease and financing obligations due within one year	667	565	551	287	309
Less: Long-term debt, excluding due within one year	30,045	36,015	38,214	41,086	41,771
Less: Long-term capital lease and financing obligations, excluding due within one year	6,780	6,003	5,816	2,606	2,788
Operating liabilities	77,213	72,352	65,936	67,388	65,280
Net operating assets	120,553	119,606	124,940	127,183	132,190
Balance-sheet-based aggregate accruals	947	-5,334	-2,243	-5,007	3,578
Ratio
Balance-sheet-based accruals ratio	0.79%	-4.36%	-1.78%	-3.86%	2.74%

Answer 1

Walmart Inc., balance sheet computation of aggregate accruals
USD $ in millions
	Jan 31, 2018	Jan 31, 2017	Jan 31, 2016	Jan 31, 2015	Jan 31, 2014
Operating Assets
Total assets	2,04,522	1,98,825	1,99,581	2,03,706	2,04,751
Less: Cash and cash equivalents	6,756	6,867	8,705	9,135	7,281
Operating assets	1,97,766	1,91,958	1,90,876	1,94,571	1,97,470
Change in Operating Asset	5,808	1,082	-3,695	-2,899
Operating Liabilities
Total liabilities	1,23,700	1,18,290	1,15,970	1,17,769	1,21,921
Less: Short-term borrowings	5,257	1,099	2,708	1,592	7,670
Less: Long-term debt due within one year	3,738	2,256	2,745	4,810	4,103
Less: Capital lease and financing obligations due within one year	667	565	551	287	309
Less: Long-term debt, excluding due within one year	30,045	36,015	38,214	41,086	41,771
Less: Long-term capital lease and financing obligations, excluding due within one year	6,780	6,003	5,816	2,606	2,788
Operating liabilities	77,213	72,352	65,936	67,388	65,280
Change in Operating Liability	4,861	6,416	-1,452	2,108
Net operating assets	1,20,553	1,19,606	1,24,940	1,27,183	1,32,190
Balance-sheet-based aggregate accruals	947	-5,334	-2,243	-5,007	3,578
Ratio
Balance-sheet-based accruals ratio	0.79%	-4.36%	-1.78%	-3.86%	2.74%

The above Question is based on “ Balance Sheet based Accrual Ratio” – We need to understand the reason – As per above calculation , we can identified that “ balance Sheet based aggregate accrual is nothing but movement of Net operating Assets on YOY .

Balance Sheet based accrual Ratio is one of the indicator to validate companies Financial health . This ratio mainly represents that company is keep on recovering money from Outstanding Account receivable. Most important to note that if company keep on dependent on accrual rather than collection which will definitely disturb Accrual ratio.

While reviewing Operating Liabilities movement on YOY basis , we noticed that Jan 2018 vs Jan 2017 – Operating Liability amount increased by $ 4861 Mio . Increase in Operating Liability me an company is not paying off Liability or rather say indirectly we are improving Cash flow    .Where as we also noticed that movement of Operating Asset between 2018 vs 2017 also increased by $ 5808 Mio . Increase in Operating Asset is not god for company because it mean company no able to collect cash on time and overall Can infloe benefit ( increase in Operating liability) has been absorbed by increase in Operating Asset.

In always need to see that companies operating asset will be reduced and liability will increase to maintain proper cash flow balance in Organization .

In case of walmart , we noticed that Major benefit in 2015 and 2018 . Reason For the same is in 2015 , Operating Asset amount significantly reduced by $2899 Mio , where as Opeating Liability also increase $ 2108 Mio , So company generated enough cash and maintain good ratio (-3.86%) . Same scenario in case of 2018 , company overall intact ratio at higher 4.36% But in current year , due to increase in Operating asset almost same line with movement of Operating Liability , overall company not able to gain much benefit .Company generated only 0.79% Balance sheet adjusted accrual ratio,.

On the basis of above data and Trend analysis , I do not feel to worry too much at moment . Company at recent past collected good amount of money and maintain proper Operating asset movement at low & recued mode , . We expect same flow will continue in near future . It will be not be good to take any decision or raise red flag on the basis of One year high Operating Asset movement .Good point to note that company always maintain Operating Liability at high level and maintain cash inflow