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.
Paying user area
Try for free
Activision Blizzard Inc. pages available for free this week:
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2008
- Debt to Equity since 2008
- Price to Earnings (P/E) since 2008
- Price to Operating Profit (P/OP) since 2008
- Price to Sales (P/S) since 2008
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Activision Blizzard Inc. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Balance-Sheet-Based Accruals Ratio
Activision Blizzard Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Held-to-maturity investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Long-term debt, net | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Take-Two Interactive Software Inc. | ||||||
| Walt Disney Co. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= – =
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =
4 Click competitor name to see calculations.
Over the examined period, net operating assets exhibited a consistent upward trend, increasing from 9,686 million US dollars at the end of 2019 to 10,862 million US dollars by the end of 2022. This steady growth indicates an expansion in the company's investment in operating assets over these years.
The balance-sheet-based aggregate accruals showed considerable variability during the same period. Starting with a negative value of -117 million US dollars in 2019, the figure rose sharply to 309 million US dollars in 2020, further increasing to 789 million US dollars in 2021, before dropping significantly to 78 million US dollars in 2022. This pattern suggests fluctuations in non-cash components of earnings, with a notable peak in 2021 followed by a marked reduction in 2022.
Correspondingly, the balance-sheet-based accruals ratio reflected these changes in accruals. Beginning at -1.2% in 2019, the ratio increased substantially to 3.14% in 2020, continued to rise to 7.59% in 2021, and then decreased markedly to 0.72% in 2022. The high accrual ratio in 2021 may indicate a period of increased earnings management or greater reliance on accrual accounting adjustments, while the reduction in 2022 suggests a return toward lower accrual levels relative to net operating assets.
Overall, the data reveal an increase in net operating assets accompanied by considerable fluctuations in accrual measures, with a peak in accrual activity in 2021 followed by moderation in the subsequent year. This trend may be interpreted as variability in the quality of earnings over the period, with potential implications for financial statement users regarding the sustainability and reliability of reported profits.
Cash-Flow-Statement-Based Accruals Ratio
Activision Blizzard Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Take-Two Interactive Software Inc. | ||||||
| Walt Disney Co. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
- Net operating assets
- The net operating assets exhibited a steady increase over the four-year period. Starting at $9,686 million at the end of 2019, the value rose modestly each year, reaching $10,862 million by the end of 2022. This gradual upward trend indicates an expansion in the company’s operating asset base.
- Cash-flow-statement-based aggregate accruals
- Aggregate accruals demonstrated a notable upward trend. Initially negative at -$306 million in 2019, they turned positive in 2020 with $123 million and continued to increase to $344 million in 2021. A significant surge is observed in 2022, where accruals spiked to $4,287 million, marking a substantial deviation from prior years.
- Cash-flow-statement-based accruals ratio
- The accruals ratio aligns with the pattern of aggregate accruals. It started as a negative value of -3.14% in 2019, shifted to positive in 2020 at 1.25%, and increased further to 3.31% in 2021. By 2022, the ratio escalated dramatically to 39.61%, suggesting a sharp increase in the proportion of accruals relative to net operating assets. This large increase may indicate a significant change in earnings quality or accounting practices.