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.
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Advanced Micro Devices Inc. pages available for free this week:
- Income Statement
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Analysis of Revenues
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Balance-Sheet-Based Accruals Ratio
Advanced Micro Devices Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of long-term debt, net | ||||||
| Less: Long-term debt, net of current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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.
- Net Operating Assets
- The net operating assets have demonstrated a significant increasing trend over the observed periods. Starting at 4,202 million USD in 2021, the figure rose steeply to 51,362 million USD in 2022 before experiencing a more moderate increase in subsequent years, reaching 52,587 million USD in 2023 and 54,157 million USD in 2024. This pattern suggests substantial asset growth initially, followed by stabilization and continued expansion at a slower pace.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals exhibit volatility across the periods. They rose sharply from 325 million USD in 2021 to 47,160 million USD in 2022, representing an extraordinary increase. However, the amounts then drastically decreased to 1,225 million USD in 2023 and slightly increased to 1,570 million USD in 2024. This fluctuation may indicate a one-time or exceptional event influencing accruals in 2022, followed by correction or normalization in subsequent years.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the pattern observed in aggregate accruals. It surged from 8.05% in 2021 to an unusually high 169.75% in 2022, which is an outlier suggesting an abnormal financial event or distortions in earnings quality for that period. Subsequent figures returned to more typical ranges, decreasing sharply to 2.36% in 2023 and slightly increasing to 2.94% in 2024. These changes imply a normalization in accruals quality after a significant deviation in 2022.
Cash-Flow-Statement-Based Accruals Ratio
Advanced Micro Devices Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash (used in) provided by investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 2024 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.
The analysis of the financial reporting quality measures over the four reported periods reveals notable fluctuations and trends in net operating assets and accrual-based metrics.
- Net Operating Assets
- There is a marked and continuous increase in net operating assets throughout the periods. Starting at 4,202 million US dollars in late 2021, this figure escalates significantly to 51,362 million US dollars by the end of 2022. The upward trajectory continues, albeit at a slower pace, reaching 52,587 million US dollars in late 2023 and further rising to 54,157 million US dollars by the conclusion of 2024. This growth suggests an expansion in the company’s operational asset base, which may be indicative of increased investment in operational capacity or growth initiatives.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show considerable volatility across the periods measured. An initial positive figure of 327 million US dollars in 2021 shifts sharply to a negative 4,244 million US dollars in 2022, indicating a substantial reversal. In 2023, the value returns to a positive 610 million US dollars, followed by another decline to negative 299 million US dollars in 2024. These fluctuations could reflect changes in the timing of cash flows relative to accounting profits, possibly influenced by operational or accounting adjustments.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the volatility seen in aggregate accruals but expressed relative to net operating assets. The ratio begins at a positive 8.1% in 2021 but experiences a significant negative swing to -15.28% in 2022, suggesting increased accruals relative to the asset base, potentially impacting earnings quality during that year. The ratio normalizes to a slight positive 1.17% in 2023 and slightly negative -0.56% in 2024, indicating a stabilization in the relationship between accruals and net operating assets in the most recent periods.
Overall, the data indicate an expanding operational asset base accompanied by fluctuating accruals, which may affect the consistency and interpretability of earnings. The significant aberration in 2022's accrual measures merits further investigation to understand underlying factors contributing to this anomaly. Subsequent periods suggest a return toward a more normalized pattern in accrual behavior relative to net operating assets.