Financial Reporting Quality: Aggregate Accruals
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
Synopsys Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Oct 31, 2025 | Oct 31, 2024 | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Oct 31, 2020 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 48,224,461) | 13,073,561) | 10,333,131) | 9,418,087) | 8,752,260) | 8,030,062) | |
| Less: Cash and cash equivalents | 2,888,030) | 3,896,532) | 1,438,913) | 1,417,608) | 1,432,840) | 1,235,653) | |
| Less: Short-term investments | 72,929) | 153,869) | 151,639) | 147,913) | 147,949) | —) | |
| Operating assets | 45,263,502) | 9,023,160) | 8,742,579) | 7,852,566) | 7,171,471) | 6,794,409) | |
| Operating Liabilities | |||||||
| Total liabilities | 19,897,446) | 4,050,355) | 4,148,830) | 3,858,897) | 3,453,317) | 3,117,695) | |
| Less: Short-term debt | 22,117) | —) | —) | —) | 74,992) | 27,084) | |
| Less: Long-term debt | 13,462,398) | 15,601) | 18,078) | 20,824) | 25,094) | 100,823) | |
| Operating liabilities | 6,412,931) | 4,034,754) | 4,130,752) | 3,838,073) | 3,353,231) | 2,989,788) | |
| Net operating assets1 | 38,850,571) | 4,988,406) | 4,611,827) | 4,014,493) | 3,818,240) | 3,804,621) | |
| Balance-sheet-based aggregate accruals2 | 33,862,165) | 376,579) | 597,334) | 196,253) | 13,619) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 154.48% | 7.85% | 13.85% | 5.01% | 0.36% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Accenture PLC | 2.83% | 35.69% | 16.32% | 21.70% | 27.93% | — | |
| Adobe Inc. | -5.28% | -3.83% | 1.85% | -8.24% | 14.14% | — | |
| AppLovin Corp. | — | -0.63% | -1.52% | 36.28% | — | — | |
| Cadence Design Systems Inc. | — | 39.84% | 11.17% | 26.65% | 4.43% | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Datadog Inc. | — | -28.51% | -35.73% | 17.56% | 173.39% | — | |
| International Business Machines Corp. | — | 2.79% | 2.42% | 1.55% | -7.39% | — | |
| Intuit Inc. | 3.52% | 3.35% | -1.74% | 85.68% | 139.73% | — | |
| Microsoft Corp. | 21.81% | 52.18% | 22.96% | 42.27% | 40.52% | — | |
| Oracle Corp. | 20.79% | 4.30% | 51.77% | 9.90% | 5.62% | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 32.24% | 89.91% | 137.01% | -124.73% | 85.21% | — | |
| Salesforce Inc. | 0.71% | -2.46% | -2.30% | 57.74% | 10.87% | — | |
| ServiceNow Inc. | 41.98% | 22.91% | 61.79% | 12.89% | — | — | |
| Workday Inc. | 20.74% | 28.44% | -11.24% | 55.93% | -15.99% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 0.00% | 26.16% | 18.26% | 29.59% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 21.35% | 8.92% | 18.19% | 200.00% | — | |
Based on: 10-K (reporting date: 2025-10-31), 10-K (reporting date: 2024-10-31), 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 45,263,502 – 6,412,931 = 38,850,571
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 38,850,571 – 4,988,406 = 33,862,165
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 33,862,165 ÷ [(38,850,571 + 4,988,406) ÷ 2] = 154.48%
4 Click competitor name to see calculations.
The information presents a review of net operating assets, aggregate accruals, and the resulting accruals ratio over a five-year period. A significant upward trend is evident in both aggregate accruals and the accruals ratio, particularly in the final year presented.
- Net Operating Assets
- Net operating assets increased steadily from 2021 to 2023, exhibiting growth from US$3,818,240 thousand to US$4,611,827 thousand. A substantial increase is then observed in 2025, reaching US$38,850,571 thousand. This represents a considerable expansion of the company’s operational asset base in the final year.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals demonstrate a marked increase over the period. Starting at US$13,619 thousand in 2021, accruals rose to US$196,253 thousand in 2022 and further to US$597,334 thousand in 2023. While decreasing to US$376,579 thousand in 2024, accruals experienced a dramatic surge in 2025, reaching US$33,862,165 thousand. This substantial rise warrants further investigation.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, calculated as aggregate accruals as a percentage of net operating assets, shows a consistent upward trajectory. Beginning at 0.36% in 2021, the ratio increased to 5.01% in 2022 and 13.85% in 2023. A slight decrease to 7.85% is noted in 2024, but the ratio escalates dramatically to 154.48% in 2025. This significant increase suggests a growing reliance on accruals relative to net operating assets, potentially indicating aggressive revenue recognition or delayed expense recognition. The substantial jump in 2025 is particularly noteworthy and could signal a potential area of concern regarding the quality of earnings.
The pronounced increase in both aggregate accruals and the accruals ratio in 2025, coupled with the significant growth in net operating assets, suggests a substantial shift in the company’s financial profile. Further scrutiny of the underlying components of accruals is recommended to understand the drivers behind these changes and assess their impact on the reliability of reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
Synopsys Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Oct 31, 2025 | Oct 31, 2024 | Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Oct 31, 2020 | ||
|---|---|---|---|---|---|---|---|
| Net income attributed to Synopsys | 1,332,220) | 2,263,380) | 1,229,888) | 984,594) | 757,516) | 664,347) | |
| Less: Net cash provided by operating activities | 1,518,608) | 1,407,029) | 1,703,274) | 1,738,900) | 1,492,622) | 991,313) | |
| Less: Net cash (used in) provided by investing activities | (15,881,269) | 1,223,013) | (482,101) | (572,623) | (549,030) | (360,418) | |
| Cash-flow-statement-based aggregate accruals | 15,694,881) | (366,662) | 8,715) | (181,683) | (186,076) | 33,452) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 71.60% | -7.64% | 0.20% | -4.64% | -4.88% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Accenture PLC | -6.95% | 24.31% | -0.19% | 11.87% | 11.80% | — | |
| Adobe Inc. | -14.85% | -21.90% | -21.73% | -19.93% | 9.21% | — | |
| AppLovin Corp. | — | -10.24% | -15.40% | 22.07% | — | — | |
| Cadence Design Systems Inc. | — | 17.36% | 3.78% | 15.03% | -5.75% | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Datadog Inc. | — | 30.92% | 53.36% | -34.44% | -28.18% | — | |
| International Business Machines Corp. | — | -3.73% | 0.99% | -7.22% | -1.64% | — | |
| Intuit Inc. | -0.10% | -8.44% | -8.74% | 25.60% | 58.72% | — | |
| Microsoft Corp. | 12.55% | 30.89% | 5.22% | 13.42% | 17.68% | — | |
| Oracle Corp. | 13.98% | -1.01% | 42.79% | -30.58% | 25.81% | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | -8.91% | 33.84% | -37.95% | -196.64% | -68.30% | — | |
| Salesforce Inc. | -6.66% | -8.44% | -8.49% | 21.96% | 10.57% | — | |
| ServiceNow Inc. | -29.72% | -7.12% | 15.44% | 8.80% | — | — | |
| Workday Inc. | -4.25% | 34.56% | 18.64% | -0.65% | -18.51% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 0.00% | 11.97% | 7.19% | 2.21% | 21.19% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 6.25% | 1.40% | 2.99% | 15.96% | — | |
Based on: 10-K (reporting date: 2025-10-31), 10-K (reporting date: 2024-10-31), 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 15,694,881 ÷ [(38,850,571 + 4,988,406) ÷ 2] = 71.60%
2 Click competitor name to see calculations.
The information presents a review of net operating assets, cash-flow-statement-based aggregate accruals, and the resulting accruals ratio over a five-year period. A significant shift in these metrics is observed, particularly in the most recent years.
- Net Operating Assets
- Net operating assets demonstrate consistent growth from 2021 to 2023, increasing from US$3,818,240 thousand to US$4,611,827 thousand. This growth continues into 2024, reaching US$4,988,406 thousand. However, a substantial increase is noted in 2025, with net operating assets rising dramatically to US$38,850,571 thousand. This represents a considerable acceleration in asset accumulation.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals are negative in 2021 and 2022, at -US$186,076 thousand and -US$181,683 thousand respectively. A positive value of US$8,715 thousand is recorded in 2023, indicating a shift in accrual patterns. Accruals turn negative again in 2024, reaching -US$366,662 thousand. A very large positive accrual value of US$15,694,881 thousand is observed in 2025, coinciding with the significant increase in net operating assets.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio follows a similar pattern to the aggregate accruals. It is negative from 2021 to 2024, ranging from -4.88% to -7.64%. The ratio becomes positive in 2023 at 0.20%, but returns to a negative value in 2024. A substantial increase to 71.60% is observed in 2025. This large positive ratio suggests that a significant portion of the change in net operating assets in 2025 is attributable to accruals rather than cash flow from operations. The substantial increase in both accruals and the accruals ratio in 2025 warrants further investigation to understand the underlying drivers and potential implications for earnings quality.
The marked changes in 2025, particularly the substantial increase in both net operating assets and the accruals ratio, represent a significant departure from prior trends and require detailed scrutiny. The shift from generally negative accruals to a large positive accrual value in 2025 should be examined to determine its sustainability and potential impact on future financial performance.