Stock Analysis on Net
Stock Analysis on Net

Applied Materials Inc. (NASDAQ:AMAT)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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-Based Accruals Ratio

Applied Materials Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Oct 27, 2024 Oct 29, 2023 Oct 30, 2022 Oct 31, 2021 Oct 25, 2020 Oct 27, 2019
Operating Assets
Total assets
Less: Cash and cash equivalents
Less: Short-term investments
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term debt
Less: Current portion of long-term debt
Less: Finance lease liabilities, current
Less: Long-term debt, net of current portion
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Advanced Micro Devices Inc.
Analog Devices Inc.
Broadcom Inc.
Intel Corp.
KLA Corp.
Lam Research Corp.
Micron Technology Inc.
NVIDIA Corp.
Qualcomm Inc.
Texas Instruments Inc.
Balance-Sheet-Based Accruals Ratio, Sector
Semiconductors & Semiconductor Equipment
Balance-Sheet-Based Accruals Ratio, Industry
Information Technology

Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).

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 exhibit a consistent upward trend over the five-year period. Starting at 10,288 million US dollars in 2020, the amount increased steadily each year, reaching 15,789 million US dollars by 2024. This growth indicates expansion in the company's investment in operations or growth in asset base related to operational activities.
Balance-Sheet-Based Aggregate Accruals
The aggregate accruals displayed considerable volatility across the years. Beginning at 379 million US dollars in 2020, there was a sharp increase to 1,952 million in 2021, followed by a further increase to 2,830 million in 2022. Subsequently, a significant decline occurred in 2023, with accruals dropping drastically to 73 million, before rising again moderately to 646 million in 2024. This fluctuation suggests varying levels of accruals which could be linked to changes in accounting estimates, revenues, or expenses recognition timing.
Balance-Sheet-Based Accruals Ratio
The accruals ratio similarly reflects the variability seen in aggregate accruals. Starting from 3.75% in 2020, it rose sharply to 17.33% in 2021 and further to 20.73% in 2022, indicating a growing proportion of accruals relative to net operating assets. In 2023, the ratio dropped substantially to 0.48%, corresponding to the marked decrease in aggregate accruals. In 2024, it increased again to 4.18%, though remaining significantly lower than the peak ratios observed in 2021 and 2022. The fluctuations in this ratio may reflect changes in the quality or earnings management practices underlying reported earnings.

Cash-Flow-Statement-Based Accruals Ratio

Applied Materials Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Oct 27, 2024 Oct 29, 2023 Oct 30, 2022 Oct 31, 2021 Oct 25, 2020 Oct 27, 2019
Net income
Less: Cash provided by operating activities
Less: 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
Advanced Micro Devices Inc.
Analog Devices Inc.
Broadcom Inc.
Intel Corp.
KLA Corp.
Lam Research Corp.
Micron Technology Inc.
NVIDIA Corp.
Qualcomm Inc.
Texas Instruments Inc.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Semiconductors & Semiconductor Equipment
Cash-Flow-Statement-Based Accruals Ratio, Industry
Information Technology

Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).

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 show a generally increasing trend over the five-year period. Starting at 10,288 million USD in 2020, the figure rises steadily each year, reaching 15,789 million USD in 2024. This consistent growth indicates an expansion in the company's investment in operating assets, which may reflect business growth or increased capital expenditure.
Cash-flow-statement-based Aggregate Accruals
The aggregate accruals demonstrate significant volatility throughout the period. In 2020, the accruals were slightly negative at -55 million USD, followed by a sharp increase to 1,662 million USD in 2021 and further to 2,483 million USD in 2022. However, in 2023, the value swung back to negative territory at -309 million USD before rising again to 827 million USD in 2024. This fluctuation suggests irregularities or variability in the timing differences between earnings and cash flows, possibly reflecting changes in earnings quality or accounting practices.
Cash-flow-statement-based Accruals Ratio
The accruals ratio mirrors the volatility observed in aggregate accruals. It was negative at -0.54% in 2020, indicating net cash inflows exceeded earnings effects at that time. The ratio then increased substantially to 14.75% in 2021 and 18.18% in 2022, signifying that accruals contributed positively and markedly to earnings relative to cash flows during those years. A notable reversal occurred in 2023, with the ratio turning negative again at -2.05%, before partially recovering to 5.35% in 2024. The oscillating ratio values highlight fluctuations in earnings quality, with periods of elevated accruals possibly indicating less sustainable earnings components.