Question

Should I be concerned about quality of earnings, based on trend analysis, of cash flow accruals:

Walmart Inc., cash flow statement computation of aggregate accruals
USD $ in millions
	Jan 31, 2018	Jan 31, 2017	Jan 31, 2016	Jan 31, 2015	Jan 31, 2014
Consolidated net income attributable to Walmart	9,862	13,643	14,694	16,363	16,022
Less: Net cash provided by operating activities	28,337	31,530	27,389	28,564	23,257
Less: Net cash used in investing activities	-9,060	-13,987	-10,675	-11,125	-12,298
Cash-flow-statement-based aggregate accruals	-9,415	-3,900	-2,020	-1,076	5,063
Ratio
Cash-flow-statement-based accruals ratio	-7.84%	-3.19%	-1.60%	-0.83%	3.88%

Answer 1

No, there is no need to bother about quality of earnings looking at the cash flow statement - based accruals ratio trend because accruals ratio on negative side over period of time which is implies that cash flow component of the ratio is higher than net income. This means the company’s earnings were based more on cash items than on non-cash items, such as the accrual items that are part of net income. This indicates a smarter investment because cash indicates liquidity rather than having money tied up in accruals.