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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- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value (EV)
- Selected Financial Data since 2021
- Return on Assets (ROA) since 2021
- Total Asset Turnover since 2021
- Price to Earnings (P/E) since 2021
- Price to Operating Profit (P/OP) since 2021
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Balance-Sheet-Based Accruals Ratio
AppLovin Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|
| Operating Assets | |||||
| Total assets | |||||
| Less: Cash and cash equivalents | |||||
| Less: Restricted cash equivalents | |||||
| Operating assets | |||||
| Operating Liabilities | |||||
| Total liabilities | |||||
| Less: Finance lease liabilities, current | |||||
| Less: Short-term debt | |||||
| Less: Long-term debt | |||||
| Less: Finance lease liabilities, non-current | |||||
| Operating liabilities | |||||
| Net operating assets1 | |||||
| Balance-sheet-based aggregate accruals2 | |||||
| Financial Ratio | |||||
| Balance-sheet-based accruals ratio3 | |||||
| Benchmarks | |||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||
| Accenture PLC | |||||
| Adobe Inc. | |||||
| Cadence Design Systems Inc. | |||||
| CrowdStrike Holdings Inc. | |||||
| Datadog Inc. | |||||
| International Business Machines Corp. | |||||
| Intuit Inc. | |||||
| Microsoft Corp. | |||||
| Oracle Corp. | |||||
| Palantir Technologies Inc. | |||||
| Palo Alto Networks Inc. | |||||
| Salesforce Inc. | |||||
| ServiceNow Inc. | |||||
| Synopsys Inc. | |||||
| Workday Inc. | |||||
| Balance-Sheet-Based Accruals Ratio, Sector | |||||
| Software & Services | |||||
| Balance-Sheet-Based Accruals Ratio, Industry | |||||
| Information Technology | |||||
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).
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 exhibited a slight downward trend over the analyzed periods. Starting from approximately 4.10 billion US dollars at the end of 2022, the value decreased marginally to about 4.04 billion in 2023 and further declined to roughly 4.01 billion by the end of 2024. This gradual decrease suggests a modest reduction in the company’s investment in operating assets.
- Balance-sheet-based aggregate accruals
- The balance-sheet-based aggregate accruals demonstrated a significant shift in values during the period under review. Initially, a substantial positive figure was recorded in 2022 at approximately 1.26 billion US dollars, indicating a large amount of accruals. However, in 2023, this figure turned negative, registering approximately -62 million, and remained negative in 2024 at around -25 million. This reversal from a high positive to negative values may imply improved earnings quality or changes in accounting policies impacting accruals.
- Balance-sheet-based accruals ratio
- The balance-sheet-based accruals ratio followed a similar changing pattern to aggregate accruals. Starting at a high accrual ratio of 36.28% in 2022, the ratio fell dramatically to a negative value of -1.52% in 2023 and then slightly increased to -0.63% in 2024, although it remained negative. The decrease and eventual negative ratio indicates a significant reduction in accruals relative to net operating assets, which may reflect a shift towards higher cash income recognition or less reliance on accrual accounting.
Cash-Flow-Statement-Based Accruals Ratio
AppLovin Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|
| Net income (loss) attributable to AppLovin | |||||
| Less: Net cash provided by operating activities | |||||
| Less: Net cash used in investing activities | |||||
| Cash-flow-statement-based aggregate accruals | |||||
| Financial Ratio | |||||
| Cash-flow-statement-based accruals ratio1 | |||||
| Benchmarks | |||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||
| Accenture PLC | |||||
| Adobe Inc. | |||||
| Cadence Design Systems Inc. | |||||
| CrowdStrike Holdings Inc. | |||||
| Datadog Inc. | |||||
| International Business Machines Corp. | |||||
| Intuit Inc. | |||||
| Microsoft Corp. | |||||
| Oracle Corp. | |||||
| Palantir Technologies Inc. | |||||
| Palo Alto Networks Inc. | |||||
| Salesforce Inc. | |||||
| ServiceNow Inc. | |||||
| Synopsys Inc. | |||||
| Workday Inc. | |||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||
| Software & Services | |||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||
| Information Technology | |||||
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).
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.
- Net Operating Assets
- The net operating assets demonstrated a slight declining trend over the three periods. Beginning at approximately 4,100 million US dollars at the end of 2022, the figure decreased to nearly 4,039 million US dollars by the end of 2023, and further fell to about 4,014 million US dollars at the end of 2024. This gradual reduction indicates a modest contraction in the company's investment in operating assets.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals showed a substantial and notable change throughout the periods. In 2022, the accruals were significantly positive at around 766 million US dollars. However, this shifted dramatically to a negative value of approximately -627 million US dollars in 2023, and although remaining negative, improved modestly to about -412 million US dollars in 2024. This reversal from positive to negative accruals indicates a fundamental change in the timing or recognition of cash flows related to operating activities.
- Cash-Flow-Statement-Based Accruals Ratio
- Corroborating the observations from aggregate accruals, the accruals ratio reported a significant decline from a high positive percentage of 22.07% in 2022 to a negative 15.4% in 2023. By 2024, this ratio improved slightly but remained negative at -10.24%. The negative percentages in the latter two periods suggest that cash flows from operations may have been stronger relative to reported earnings, potentially reflecting an improvement in cash-generating quality or a change in earnings composition.