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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- Income Statement
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Capital Asset Pricing Model (CAPM)
- Operating Profit Margin since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
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Balance-Sheet-Based Accruals Ratio
Apple Inc., balance sheet computation of aggregate accruals
US$ in millions
| Sep 28, 2024 | Sep 30, 2023 | Sep 24, 2022 | Sep 25, 2021 | Sep 26, 2020 | Sep 28, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | |||||||
| Less: Cash and cash equivalents | |||||||
| Less: Current marketable securities | |||||||
| Operating assets | |||||||
| Operating Liabilities | |||||||
| Total liabilities | |||||||
| Less: Current portion of finance leases | |||||||
| Less: Commercial paper | |||||||
| Less: Current portion of term debt | |||||||
| Less: Non-current portion of term debt | |||||||
| Less: Non-current portion of finance leases | |||||||
| Operating liabilities | |||||||
| Net operating assets1 | |||||||
| Balance-sheet-based aggregate accruals2 | |||||||
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | |||||||
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Arista Networks Inc. | |||||||
| Cisco Systems Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | |||||||
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | |||||||
Based on: 10-K (reporting date: 2024-09-28), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-24), 10-K (reporting date: 2021-09-25), 10-K (reporting date: 2020-09-26), 10-K (reporting date: 2019-09-28).
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 demonstrate a fluctuating but generally declining trend over the five-year period. Starting at approximately $87.5 billion in 2020, the figure increased sharply to around $126 billion in 2021. Subsequently, there was a steady decline each year, falling to roughly $99.3 billion by 2024. This indicates a contraction of the company's net operating assets after a peak in 2021.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals exhibit significant volatility across the analyzed periods. The figure was negative at about -$10.5 billion in 2020, turning sharply positive to approximately $38.5 billion in 2021. Following that, the accruals returned to negative values from 2022 through 2024, with a decreasing magnitude from -$2.6 billion in 2022 to -$13.4 billion in 2024. This pattern suggests substantial fluctuations in the accrual components of the financial statements, with a notable reversal from positive in 2021 to consistent negative values thereafter.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio closely mirrors the aggregate accruals behavior, indicating notable variations in accrual quality. The ratio was negative at -11.31% in 2020, surged to a high positive level of 36.09% in 2021, and then reverted to negative territory in subsequent years: -2.12% in 2022, -9.04% in 2023, and -12.64% in 2024. The 2021 outlier suggests an unusual increase in accruals relative to net operating assets, while the return to negative values implies a normalization or potential conservatism in accrual practices in the following years.
Cash-Flow-Statement-Based Accruals Ratio
Apple Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Sep 28, 2024 | Sep 30, 2023 | Sep 24, 2022 | Sep 25, 2021 | Sep 26, 2020 | Sep 28, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | |||||||
| Less: Cash generated by operating activities | |||||||
| Less: Cash (used in) generated 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 | |||||||
| Arista Networks Inc. | |||||||
| Cisco Systems Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | |||||||
Based on: 10-K (reporting date: 2024-09-28), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-24), 10-K (reporting date: 2021-09-25), 10-K (reporting date: 2020-09-26), 10-K (reporting date: 2019-09-28).
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 experienced an overall decline over the observed periods. Starting at 87,493 million US dollars in September 2020, there was a notable increase to 126,018 million in September 2021. However, subsequent periods show a decreasing trend: 123,378 million in September 2022, 112,703 million in September 2023, and reaching 99,304 million by September 2024. This pattern indicates a peak in 2021 followed by a continuous reduction in net operating assets.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals revealed significant volatility. The company recorded a large negative value of -18,974 million US dollars in 2020, which shifted sharply to a positive figure of 5,187 million in 2021. The value then approached zero in 2022 (6 million). However, in 2023 and 2024, the accruals dropped substantially to -17,253 million and further to -27,453 million respectively. This suggests considerable fluctuations in accrual activities, with a shift from negative to positive and then back to a pronounced negative position.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrored the direction of aggregate accruals, indicating abrupt changes in the company's accrual quality. It started with a negative ratio of -20.46% in 2020, improved to a positive 4.86% in 2021, and then stabilized at zero in 2022. Subsequently, the ratio reverted to negative figures, -14.62% in 2023 and further declined to -25.9% in 2024. This trajectory implies periods of both positive and negative accrual quality, with a clear deterioration in the last two years.