Stock Analysis on Net

Kinder Morgan Inc. (NYSE:KMI)

This company has been moved to the archive! The financial data has not been updated since April 29, 2020.

Financial Reporting Quality: Aggregate Accruals 

Microsoft Excel

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

Kinder Morgan Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Operating Assets
Total assets 74,157 78,866 79,055 80,305 84,104
Less: Cash and cash equivalents 185 3,280 264 684 229
Less: Restricted deposits 24 51 62 103 60
Less: Marketable securities at fair value 925
Operating assets 73,023 75,535 78,729 79,518 83,815
Operating Liabilities
Total liabilities 39,268 43,669 43,931 45,503 48,701
Less: Current portion of debt 2,477 3,388 2,828 2,696 821
Less: Long-term debt, excluding current portion 31,915 33,936 35,015 37,354 42,406
Operating liabilities 4,876 6,345 6,088 5,453 5,474
 
Net operating assets1 68,147 69,190 72,641 74,065 78,341
Balance-sheet-based aggregate accruals2 (1,043) (3,451) (1,424) (4,276)
Financial Ratio
Balance-sheet-based accruals ratio3 -1.52% -4.87% -1.94% -5.61%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Chevron Corp.
ConocoPhillips
Exxon Mobil Corp.
Occidental Petroleum Corp.

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

1 2019 Calculation
Net operating assets = Operating assets – Operating liabilities
= 73,0234,876 = 68,147

2 2019 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2019 – Net operating assets2018
= 68,14769,190 = -1,043

3 2019 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,043 ÷ [(68,147 + 69,190) ÷ 2] = -1.52%

4 Click competitor name to see calculations.


Net Operating Assets
The net operating assets showed a declining trend over the observed period. Starting at 74,065 million US dollars at the end of 2016, the figure decreased to 68,147 million US dollars by the end of 2019. This represents a gradual reduction in the company's net operating asset base, indicating possible divestitures, asset impairments, or an overall strategic shift in asset management.
Balance-sheet-based Aggregate Accruals
The balance-sheet-based aggregate accruals fluctuated but generally exhibited less extreme swings over time. In 2016, the accruals were negative at -4,276 million US dollars, followed by a significant reduction in magnitude to -1,424 million in 2017. Subsequently, the accruals swung back to a larger negative value of -3,451 million in 2018, before decreasing again to -1,043 million in 2019. These variations suggest changes in the accrual accounting components, potentially reflecting volatility in earnings quality or adjustments in working capital components.
Balance-sheet-based Accruals Ratio
The accruals ratio, expressed as a percentage of net operating assets, followed a pattern consistent with the aggregate accrual values. It started at -5.61% in 2016, improved to -1.94% in 2017, then worsened to -4.87% in 2018, before improving again to -1.52% in 2019. This ratio's fluctuations demonstrate variability in the proportion of accruals relative to net operating assets, reflecting potential changes in earnings quality and management's accounting discretion. The less negative values in 2017 and 2019 suggest periods of improved earnings quality compared to 2016 and 2018.

Cash-Flow-Statement-Based Accruals Ratio

Kinder Morgan Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net income attributable to Kinder Morgan, Inc. 2,190 1,609 183 708 253
Less: Net cash provided by operating activities 4,748 5,043 4,601 4,787 5,303
Less: Net cash used in investing activities (1,714) (68) (3,362) (1,705) (5,706)
Cash-flow-statement-based aggregate accruals (844) (3,366) (1,056) (2,374) 656
Financial Ratio
Cash-flow-statement-based accruals ratio1 -1.23% -4.75% -1.44% -3.12%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Chevron Corp.
ConocoPhillips
Exxon Mobil Corp.
Occidental Petroleum Corp.

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

1 2019 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -844 ÷ [(68,147 + 69,190) ÷ 2] = -1.23%

2 Click competitor name to see calculations.


Net Operating Assets
The value of net operating assets shows a declining trend over the four-year period. Starting at 74,065 million USD in 2016, it slightly decreased to 72,641 million USD in 2017, followed by a more pronounced decrease to 69,190 million USD in 2018, and further to 68,147 million USD in 2019. This continuous reduction indicates a gradual contraction in the operating asset base.
Cash-Flow-Statement-Based Aggregate Accruals
The aggregate accruals exhibited considerable fluctuations but remained negative throughout the period. In 2016, the value was -2,374 million USD, which improved to -1,056 million USD in 2017, suggesting a reduction in accruals. However, in 2018, there was a substantial increase in the negative accruals to -3,366 million USD, representing a significant deterioration. This trend reversed somewhat in 2019, with the value improving again to -844 million USD. These variations indicate instability in accrual accounting adjustments relative to cash flows.
Cash-Flow-Statement-Based Accruals Ratio
The accruals ratio, expressed as a percentage, followed a pattern similar to aggregate accruals. It started at -3.12% in 2016, improved to -1.44% in 2017, then significantly worsened to -4.75% in 2018 before improving once more to -1.23% in 2019. The fluctuation in this ratio further reflects the volatility in accrual quality relative to cash flows. The negative values consistently indicate that accruals reduce reported cash flow, and the sharp increase in negative ratio in 2018 raises concerns about the quality of earnings in that year.