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
Amgen Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 91,839) | 97,154) | 65,121) | 61,165) | 62,948) | |
| Less: Cash and cash equivalents | 11,973) | 10,944) | 7,629) | 7,989) | 6,266) | |
| Less: Marketable securities | —) | —) | 1,676) | 48) | 4,381) | |
| Operating assets | 79,866) | 86,210) | 55,816) | 53,128) | 52,301) | |
| Operating Liabilities | ||||||
| Total liabilities | 85,962) | 90,922) | 61,460) | 54,465) | 53,539) | |
| Less: Current portion of long-term debt | 3,550) | 1,443) | 1,591) | 87) | 91) | |
| Less: Long-term debt, excluding current portion | 56,549) | 63,170) | 37,354) | 33,222) | 32,895) | |
| Operating liabilities | 25,863) | 26,309) | 22,515) | 21,156) | 20,553) | |
| Net operating assets1 | 54,003) | 59,901) | 33,301) | 31,972) | 31,748) | |
| Balance-sheet-based aggregate accruals2 | (5,898) | 26,600) | 1,329) | 224) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -10.36% | 57.08% | 4.07% | 0.70% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AbbVie Inc. | 13.10% | -22.39% | -14.27% | -9.69% | — | |
| Bristol-Myers Squibb Co. | -3.21% | -7.12% | -3.86% | -13.40% | — | |
| Danaher Corp. | -3.94% | 3.48% | -1.55% | 16.41% | — | |
| Eli Lilly & Co. | 29.18% | 28.84% | 11.38% | 16.60% | — | |
| Gilead Sciences Inc. | -11.79% | 1.04% | -2.92% | -2.34% | — | |
| Johnson & Johnson | 10.61% | -21.13% | 19.84% | 3.75% | — | |
| Merck & Co. Inc. | 6.20% | 3.16% | 0.46% | 25.14% | — | |
| Pfizer Inc. | -11.48% | 30.66% | 24.95% | -7.11% | — | |
| Regeneron Pharmaceuticals Inc. | 25.51% | 1.17% | 11.07% | 43.54% | — | |
| Thermo Fisher Scientific Inc. | 2.28% | 4.96% | -1.78% | 43.38% | — | |
| Vertex Pharmaceuticals Inc. | 42.13% | 61.24% | 14.07% | 18.20% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 1.64% | 7.36% | 4.84% | 6.18% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 5.49% | 7.80% | 5.29% | 5.94% | — | |
Based on: 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), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 79,866 – 25,863 = 54,003
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 54,003 – 59,901 = -5,898
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -5,898 ÷ [(54,003 + 59,901) ÷ 2] = -10.36%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited an overall increasing trend from 2021 to 2023, rising from 31,972 million US dollars to 59,901 million US dollars. However, in 2024, there was a decline to 54,003 million US dollars, indicating a reduction in net operating assets after the substantial growth observed in the previous year.
- Balance-Sheet-Based Aggregate Accruals
- The balance-sheet-based aggregate accruals showed notable volatility across the periods. Initially, there was an increase from 224 million US dollars in 2021 to 1,329 million US dollars in 2022. This was followed by a dramatic surge in 2023, reaching 26,600 million US dollars. In 2024, however, the figure reversed sharply to a negative value of -5,898 million US dollars, indicating a significant reversal or adjustment in accruals.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the pattern observed in aggregate accruals, increasing from a low level of 0.7% in 2021 to 4.07% in 2022. It then escalated sharply to 57.08% in 2023, suggesting an unusually large proportion of accruals relative to net operating assets that year. The ratio dropped substantially in 2024 to -10.36%, reflecting a substantial negative accrual impact relative to the size of net operating assets.
Cash-Flow-Statement-Based Accruals Ratio
Amgen Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income | 4,090) | 6,717) | 6,552) | 5,893) | 7,264) | |
| Less: Net cash provided by operating activities | 11,490) | 8,471) | 9,721) | 9,261) | 10,497) | |
| Less: Net cash (used in) provided by investing activities | (1,046) | (26,204) | (6,044) | 733) | (5,401) | |
| Cash-flow-statement-based aggregate accruals | (6,354) | 24,450) | 2,875) | (4,101) | 2,168) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -11.16% | 52.47% | 8.81% | -12.87% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| AbbVie Inc. | 10.32% | -24.89% | -16.25% | -10.28% | — | |
| Bristol-Myers Squibb Co. | -4.97% | -5.99% | -9.10% | -12.73% | — | |
| Danaher Corp. | -1.25% | 8.20% | 1.44% | 18.48% | — | |
| Eli Lilly & Co. | 28.52% | 28.13% | 10.32% | 5.30% | — | |
| Gilead Sciences Inc. | -18.05% | -0.19% | -4.95% | -4.86% | — | |
| Johnson & Johnson | 10.58% | 13.66% | 10.78% | 8.23% | — | |
| Merck & Co. Inc. | 5.00% | 2.23% | 0.61% | 29.09% | — | |
| Pfizer Inc. | -5.24% | 19.96% | 18.46% | 13.18% | — | |
| Regeneron Pharmaceuticals Inc. | 12.04% | 14.35% | 18.61% | 49.24% | — | |
| Thermo Fisher Scientific Inc. | 4.71% | 3.80% | -0.06% | 34.69% | — | |
| Vertex Pharmaceuticals Inc. | 43.34% | 62.03% | -14.45% | 1.38% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 2.07% | 9.68% | 2.52% | 8.19% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 4.00% | 8.59% | 4.25% | 7.53% | — | |
Based on: 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), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -6,354 ÷ [(54,003 + 59,901) ÷ 2] = -11.16%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit an overall increasing trend, rising from 31,972 million USD at the end of 2021 to a peak of 59,901 million USD in 2023, followed by a slight decrease to 54,003 million USD in 2024. This indicates substantial growth in operating asset base over the period, with a notable surge between 2022 and 2023, then a modest contraction in the last year.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show significant volatility. The value starts negative at -4,101 million USD in 2021, shifts to positive 2,875 million USD in 2022, rises sharply to 24,450 million USD in 2023, then declines to a negative figure of -6,354 million USD in 2024. This pattern reflects substantial fluctuations in accruals, highlighting periods of both large non-cash increases and decreases affecting the cash flow statement.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio experiences considerable variation, moving from -12.87% in 2021 to a positive 8.81% in 2022, then peaking at an elevated 52.47% in 2023, before declining again to -11.16% in 2024. This ratio swings from negative to highly positive back to negative, indicating inconsistency in accruals relative to net operating assets and suggesting fluctuating quality in reported earnings relative to cash flows.