Adobe Inc. (NASDAQ:ADBE)

The balance-sheet-based accruals ratio exhibits considerable fluctuation over the five-year period. Initially positive and substantial, the ratio transitions to negative values before stabilizing in a negative range. Net operating assets demonstrate a general declining trend throughout the period.

Net Operating Assets

Net operating assets decreased from US$13,122 million in 2021 to US$11,238 million in 2025. The largest decrease occurred between 2021 and 2022, with a reduction of US$1,038 million. Subsequent years show more moderate declines, though a continued downward trajectory is evident.

Balance-Sheet-Based Aggregate Accruals

Aggregate accruals were positive in 2021 and 2023, reaching US$1,733 million and US$226 million respectively. However, negative accruals were observed in 2022, 2024, and 2025, amounting to -US$1,038 million, -US$463 million, and -US$609 million. The magnitude of negative accruals increased from 2024 to 2025.

Balance-Sheet-Based Accruals Ratio

The accruals ratio began at 14.14% in 2021, indicating a significant level of accruals relative to net operating assets. A substantial decline followed in 2022, resulting in a negative ratio of -8.24%. The ratio remained negative for the subsequent years, reaching -3.83% in 2024 and further decreasing to -5.28% in 2025. This suggests a shift in the relationship between reported earnings and cash flows, with accruals increasingly reducing reported income.

The consistent negative accruals ratio in the later years warrants further investigation. While negative accruals are not inherently problematic, a sustained negative trend could indicate a reversal of previous accruals or potentially aggressive revenue recognition practices. The concurrent decline in net operating assets adds context to these accrual patterns.

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 accruals is evident, moving from positive values to consistently negative values, and then showing a moderating trend in the most recent year.

Net Operating Assets

Net operating assets experienced a decrease from US$13,122 million in 2021 to US$11,238 million in 2025. The decline was not linear, with a slight increase observed between 2022 and 2023, but the overall trend is downward. This suggests a potential reduction in the company’s investment in operating assets or a decrease in their value.

Cash-Flow-Statement-Based Aggregate Accruals

Aggregate accruals transitioned dramatically from a positive US$1,129 million in 2021 to negative values beginning in 2022. The negative accruals deepened in 2022 and 2023, reaching -US$2,650 million. While remaining negative in 2024 at -US$2,645 million, accruals improved to -US$1,714 million in 2025. This indicates a shift from accruals contributing to net income to accruals detracting from net income, and a subsequent partial recovery in the latest period.

Cash-Flow-Statement-Based Accruals Ratio

The accruals ratio mirrors the trend in aggregate accruals. Starting at 9.21% in 2021, the ratio became negative in 2022, reaching -19.93%. It further decreased to -21.73% in 2023 and -21.90% in 2024, before improving to -14.85% in 2025. A consistently negative and substantial accruals ratio suggests that reported earnings are increasingly reliant on non-cash adjustments and may indicate potential concerns regarding the quality of earnings. The moderation in 2025 is a positive sign, but the ratio remains significantly negative.

The consistent negative accruals ratio over the 2022-2024 period warrants further investigation. While the improvement in 2025 is encouraging, the underlying drivers of these accrual patterns should be examined to assess their sustainability and potential impact on future financial performance.