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
Apple Inc., balance sheet computation of aggregate accruals
US$ in millions
| Sep 30, 2023 | Sep 24, 2022 | Sep 25, 2021 | Sep 26, 2020 | Sep 28, 2019 | Sep 29, 2018 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 352,583) | 352,755) | 351,002) | 323,888) | 338,516) | 365,725) | |
| Less: Cash and cash equivalents | 29,965) | 23,646) | 34,940) | 38,016) | 48,844) | 25,913) | |
| Less: Current marketable securities | 31,590) | 24,658) | 27,699) | 52,927) | 51,713) | 40,388) | |
| Operating assets | 291,028) | 304,451) | 288,363) | 232,945) | 237,959) | 299,424) | |
| Operating Liabilities | |||||||
| Total liabilities | 290,437) | 302,083) | 287,912) | 258,549) | 248,028) | 258,578) | |
| Less: Current portion of finance leases | 165) | 129) | 79) | 24) | —) | —) | |
| Less: Commercial paper | 5,985) | 9,982) | 6,000) | 4,996) | 5,980) | 11,964) | |
| Less: Current portion of term debt | 9,822) | 11,128) | 9,613) | 8,773) | 10,260) | 8,784) | |
| Less: Non-current portion of term debt | 95,281) | 98,959) | 109,106) | 98,667) | 91,807) | 93,735) | |
| Less: Non-current portion of finance leases | 859) | 812) | 769) | 637) | —) | —) | |
| Operating liabilities | 178,325) | 181,073) | 162,345) | 145,452) | 139,981) | 144,095) | |
| Net operating assets1 | 112,703) | 123,378) | 126,018) | 87,493) | 97,978) | 155,329) | |
| Balance-sheet-based aggregate accruals2 | (10,675) | (2,640) | 38,525) | (10,485) | (57,351) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | -9.04% | -2.12% | 36.09% | -11.31% | -45.28% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Arista Networks Inc. | 17.14% | 106.22% | 24.14% | 89.72% | — | — | |
| Cisco Systems Inc. | -12.09% | 5.96% | 20.24% | -7.26% | 11.05% | — | |
| Super Micro Computer Inc. | 3.74% | 58.35% | 8.42% | 20.97% | -16.37% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | -9.11% | 0.76% | 32.81% | -10.00% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 9.17% | 21.79% | 21.33% | 2.87% | 200.00% | — | |
Based on: 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), 10-K (reporting date: 2018-09-29).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 291,028 – 178,325 = 112,703
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 112,703 – 123,378 = -10,675
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -10,675 ÷ [(112,703 + 123,378) ÷ 2] = -9.04%
4 Click competitor name to see calculations.
| Financial ratio | Description | The company |
|---|---|---|
| Balance-sheet-based accruals ratio | Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets. | Using the balance-sheet-based accruals ratio, Apple Inc. deteriorated earnings quality from 2022 to 2023. |
Cash-Flow-Statement-Based Accruals Ratio
Apple Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Sep 30, 2023 | Sep 24, 2022 | Sep 25, 2021 | Sep 26, 2020 | Sep 28, 2019 | Sep 29, 2018 | ||
|---|---|---|---|---|---|---|---|
| Net income | 96,995) | 99,803) | 94,680) | 57,411) | 55,256) | 59,531) | |
| Less: Cash generated by operating activities | 110,543) | 122,151) | 104,038) | 80,674) | 69,391) | 77,434) | |
| Less: Cash (used in) generated by investing activities | 3,705) | (22,354) | (14,545) | (4,289) | 45,896) | 16,066) | |
| Cash-flow-statement-based aggregate accruals | (17,253) | 6) | 5,187) | (18,974) | (60,031) | (33,969) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -14.62% | 0.00% | 4.86% | -20.46% | -47.40% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Arista Networks Inc. | 36.37% | 52.90% | 147.50% | 164.55% | — | — | |
| Cisco Systems Inc. | -7.65% | -10.18% | 1.64% | -32.20% | -80.97% | — | |
| Super Micro Computer Inc. | 0.89% | 56.84% | 5.08% | 19.76% | -21.24% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | -12.43% | -0.99% | 4.79% | -22.09% | -127.84% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 1.25% | 3.82% | 10.69% | -8.36% | -22.15% | — | |
Based on: 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), 10-K (reporting date: 2018-09-29).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -17,253 ÷ [(112,703 + 123,378) ÷ 2] = -14.62%
2 Click competitor name to see calculations.
| Financial ratio | Description | The company |
|---|---|---|
| Cash-flow-statement-based accruals ratio | Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets. | Using the cash-flow-statement-based accruals ratio, Apple Inc. deteriorated earnings quality from 2022 to 2023. |