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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Amgen Inc. pages available for free this week:
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
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Balance-Sheet-Based Accruals Ratio
Amgen Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of long-term debt | ||||||
| Less: Long-term debt, excluding 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 | ||||||
| AbbVie Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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.
The balance-sheet-based accruals ratio exhibits substantial fluctuation over the observed period. Net operating assets demonstrate a generally increasing trend, though with a notable decline between 2023 and 2024.
- Net Operating Assets
- Net operating assets increased significantly from $33.301 billion in 2022 to $59.901 billion in 2023, representing a substantial expansion of the company’s operational footprint. However, a decrease to $54.003 billion was recorded in 2024, followed by a marginal increase to $54.133 billion in 2025. This suggests potential stabilization, or a period of asset realignment, following the initial growth.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals show a dramatic increase from $1.329 billion in 2022 to $26.600 billion in 2023. This was followed by a significant negative adjustment in 2024, resulting in accruals of -$5.898 billion. Accruals then became minimal in 2025, reaching $0.130 billion. The volatility in accruals suggests considerable changes in the timing of revenue and expense recognition.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio increased sharply from 4.07% in 2022 to 57.08% in 2023, indicating a substantial reliance on accruals relative to net operating assets. The ratio then experienced a dramatic reversal in 2024, falling to -10.36%, suggesting a significant reduction in accruals or a decrease in net operating assets. Finally, the ratio stabilized at 0.24% in 2025, approaching a negligible level. The large swings in this ratio warrant further investigation into the underlying accounting practices and potential earnings management activities. A ratio exceeding 10% is often considered a potential red flag, and the 2023 value is particularly noteworthy.
The combined trends suggest a period of rapid growth and accrual-based earnings enhancement in 2023, followed by a correction in 2024. The stabilization in 2025 indicates a potential return to more sustainable earnings patterns, though the initial surge and subsequent reversal require careful scrutiny.
Cash-Flow-Statement-Based Accruals Ratio
Amgen Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| 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 | ||||||
| AbbVie Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 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 reveals significant fluctuations in cash-flow-statement-based accruals and the associated ratio over the four-year period. Net operating assets demonstrate a general increase initially, followed by stabilization and a slight decline.
- Net Operating Assets
- Net operating assets increased substantially from 33,301 US$ millions in 2022 to 59,901 US$ millions in 2023. This represents a significant expansion of the company’s operational footprint. Subsequent years show a decrease to 54,003 US$ millions in 2024, followed by a minimal increase to 54,133 US$ millions in 2025, indicating a leveling off of asset growth.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals exhibited a dramatic increase from 2,875 US$ millions in 2022 to 24,450 US$ millions in 2023. This suggests a substantial build-up of non-cash items impacting net income. A sharp reversal occurred in 2024, with accruals declining to -6,354 US$ millions, indicating a significant release of previously accrued items. This trend continued in 2025, with accruals reaching -304 US$ millions, suggesting a continued reduction in non-cash impacts on net income.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trends in aggregate accruals. It rose sharply from 8.81% in 2022 to 52.47% in 2023, indicating a considerable proportion of reported earnings were derived from accruals rather than cash flow. The ratio then experienced a substantial decline, becoming negative at -11.16% in 2024 and further decreasing to -0.56% in 2025. This suggests a diminishing reliance on accruals to support reported earnings and a potential shift towards greater cash-based profitability. The negative values in 2024 and 2025 indicate that cash flows exceeded net income, after accounting for non-cash items.
The substantial volatility in accruals and the accruals ratio warrants further investigation. The large increase in 2023, followed by a significant reversal in subsequent years, could indicate aggressive accounting practices or changes in the timing of revenue and expense recognition. The shift to negative accruals ratios in the later years may be a positive sign, suggesting improved cash generation relative to reported earnings, but requires careful scrutiny to ensure sustainability and understand the underlying drivers.