Applied Materials Inc. (NASDAQ:AMAT)

The analysis of the financial reporting quality measures over the five-year period reveals several notable trends and variations in the key metrics related to net operating assets and accruals.

Net Operating Assets

The net operating assets show a consistent upward trajectory throughout the analyzed period. Starting at 12,240 million US dollars in 2021, the figure increases steadily each year, reaching 18,397 million US dollars by 2025. This indicates a continuous expansion of the company's operating asset base, reflecting either business growth, increased investment in operational resources, or both.

Balance-Sheet-Based Aggregate Accruals

The aggregate accruals exhibit significant fluctuations rather than a steady trend. The value rises from 1,952 million US dollars in 2021 to a peak of 2,830 million in 2022, followed by a sharp decline to 73 million in 2023. It then partially recovers to 646 million in 2024 before increasing substantially again to 2,608 million in 2025. These fluctuations may indicate variability in accrual accounting adjustments, potentially influenced by changes in estimation methods, operational events, or accounting policy applications over the years.

Balance-Sheet-Based Accruals Ratio

The accruals ratio, which measures aggregate accruals relative to net operating assets, mirrors the pattern seen in aggregate accruals with some differences in magnitude. The ratio starts at 17.33% in 2021, rises to its highest point of 20.73% in 2022, plunges to a mere 0.48% in 2023, then increases again to 4.18% in 2024, and further to 15.26% in 2025. This variability suggests changing quality or reliability in financial reporting, given that accruals can be associated with earnings management or accounting estimation errors.

Overall, while the net operating assets show steady growth, the accrual figures and ratios indicate considerable volatility, with a marked drop in 2023 followed by a recovery phase. Such fluctuations in accruals could merit further investigation to assess the underlying causes and potential implications for the company's financial reporting quality.

Net Operating Assets

The net operating assets demonstrate a consistent upward trend over the five-year period. Starting at 12,240 million US dollars in 2021, the value increases each year, reaching 18,397 million US dollars in 2025. This growth reflects an expanding asset base involved in the company's core operations, indicating a possible increase in business scale or investments to support ongoing activities.

Cash-flow-statement-based Aggregate Accruals

The aggregate accruals exhibit significant volatility throughout the period. Initially, there is a considerable increase from 1,662 million US dollars in 2021 to 2,483 million US dollars in 2022. This is followed by a sharp reversal to negative accruals of -309 million US dollars in 2023, before rising again to 827 million US dollars in 2024 and further to 1,822 million US dollars in 2025. The fluctuation suggests variability in the company's accrual accounting outcomes, potentially influenced by changes in earnings quality or timing differences between cash flows and reported income.

Cash-flow-statement-based Accruals Ratio

The accruals ratio also reflects the variability observed in aggregate accruals but expressed relative to net operating assets. The ratio increases from 14.75% in 2021 to a peak of 18.18% in 2022, followed by a notable decline to -2.05% in 2023, indicating a period where accruals worked to increase reported cash flows relative to operating assets in a negative manner. Subsequently, it rises to 5.35% in 2024 and further to 10.66% in 2025. The ratio’s movement suggests changes in the proportion of accruals to operating assets, which may impact the assessment of earnings quality, with years of higher positive ratios possibly indicating higher non-cash income components and years with lower or negative ratios reflecting a correction or reversal of such effects.