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
American Airlines Group Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 63,058) | 64,716) | 66,467) | 62,008) | 59,995) | |
| Less: Cash | 578) | 440) | 273) | 245) | 280) | |
| Less: Short-term investments | 7,000) | 8,525) | 12,158) | 6,619) | 3,546) | |
| Less: Restricted cash and short-term investments | 910) | 995) | 990) | 609) | 158) | |
| Operating assets | 54,570) | 54,756) | 53,046) | 54,535) | 56,011) | |
| Operating Liabilities | ||||||
| Total liabilities | 68,260) | 70,515) | 73,807) | 68,875) | 60,113) | |
| Less: Current maturities of long-term debt and finance leases | 3,632) | 3,274) | 2,489) | 2,797) | 2,861) | |
| Less: Long-term debt and finance leases, net of current maturities | 29,270) | 32,389) | 35,571) | 29,796) | 21,454) | |
| Operating liabilities | 35,358) | 34,852) | 35,747) | 36,282) | 35,798) | |
| Net operating assets1 | 19,212) | 19,904) | 17,299) | 18,253) | 20,213) | |
| Balance-sheet-based aggregate accruals2 | (692) | 2,605) | (954) | (1,960) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -3.54% | 14.00% | -5.37% | -10.19% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| FedEx Corp. | 3.85% | 0.91% | — | — | — | |
| Uber Technologies Inc. | 21.78% | -40.74% | — | — | — | |
| Union Pacific Corp. | 4.02% | 3.63% | — | — | — | |
| United Airlines Holdings Inc. | 15.54% | 3.50% | — | — | — | |
| United Parcel Service Inc. | 7.14% | 26.54% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Transportation | 8.11% | 2.58% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | -0.83% | 0.67% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 54,570 – 35,358 = 19,212
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 19,212 – 19,904 = -692
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -692 ÷ [(19,212 + 19,904) ÷ 2] = -3.54%
4 Click competitor name to see calculations.
The analysis of financial reporting quality from 2020 to 2023 indicates significant volatility in balance-sheet-based aggregate accruals, characterized by a notable deviation in 2022 compared to the surrounding years.
- Net Operating Assets
- Net operating assets exhibited relative stability throughout the period, fluctuating between a low of US$ 17,299 million in 2021 and a peak of US$ 19,904 million in 2022. The period ended with a slight contraction to US$ 19,212 million in 2023.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals showed substantial variance, predominantly remaining in negative territory except for a significant spike in 2022. Values moved from US$ -1,960 million in 2020 to US$ -954 million in 2021, before reversing sharply to positive US$ 2,605 million in 2022. By 2023, the figure returned to a negative value of US$ -692 million.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio followed a non-linear trend, moving from -10.19% in 2020 to -5.37% in 2021. A sharp increase to 14.00% was observed in 2022, indicating a period where accrual-based earnings exceeded cash flows significantly. This trend reversed in 2023, with the ratio returning to -3.54%, suggesting a return to a reporting environment where cash flows were higher than accounting earnings.
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Cash-Flow-Statement-Based Accruals Ratio
American Airlines Group Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income (loss) | 822) | 127) | (1,993) | (8,885) | 1,686) | |
| Less: Net cash provided by (used in) operating activities | 3,803) | 2,173) | 704) | (6,543) | 3,815) | |
| Less: Net cash (used in) provided by investing activities | (502) | 636) | (5,983) | (4,342) | (2,243) | |
| Cash-flow-statement-based aggregate accruals | (2,479) | (2,682) | 3,286) | 2,000) | 114) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -12.68% | -14.42% | 18.49% | 10.40% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| FedEx Corp. | 3.32% | 2.12% | — | — | — | |
| Uber Technologies Inc. | 10.31% | -49.13% | — | — | — | |
| Union Pacific Corp. | 3.67% | 2.53% | — | — | — | |
| United Airlines Holdings Inc. | 7.35% | 38.00% | — | — | — | |
| United Parcel Service Inc. | 10.26% | 16.44% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Transportation | 6.23% | 4.77% | 2.42% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | 1.66% | -2.30% | -17.51% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,479 ÷ [(19,212 + 19,904) ÷ 2] = -12.68%
2 Click competitor name to see calculations.
The analysis of financial reporting quality reveals a significant transition in the relationship between reported earnings and cash flows over the four-year period ending December 31, 2023.
- Net Operating Assets
- Net operating assets demonstrated relative stability with moderate fluctuations. After a slight decrease to 17,299 million US dollars in 2021, the value peaked at 19,904 million US dollars in 2022, before declining slightly to 19,212 million US dollars by the end of 2023.
- Cash-Flow-Statement-Based Aggregate Accruals
- A pronounced reversal is observed in aggregate accruals. The values were positive during 2020 and 2021, peaking at 3,286 million US dollars. This trend shifted abruptly in 2022 and 2023, with accruals turning negative at -2,682 million US dollars and -2,479 million US dollars, respectively.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio experienced a volatile trajectory, increasing from 10.40% in 2020 to 18.49% in 2021. A sharp correction occurred in 2022, as the ratio dropped to -14.42%, followed by a slight moderation to -12.68% in 2023. This shift from positive to negative ratios suggests that in the latter two years, cash flows exceeded accrual-based earnings, which typically indicates a change in the quality of reported earnings.
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