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
Autodesk Inc., balance sheet computation of aggregate accruals
US$ in millions
| Jan 31, 2024 | Jan 31, 2023 | Jan 31, 2022 | Jan 31, 2021 | Jan 31, 2020 | Jan 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 9,912) | 9,438) | 8,607) | 7,280) | 6,179) | 4,729) | |
| Less: Cash and cash equivalents | 1,892) | 1,947) | 1,528) | 1,772) | 1,775) | 886) | |
| Less: Marketable securities | 354) | 125) | 236) | 85) | 69) | 68) | |
| Operating assets | 7,666) | 7,366) | 6,843) | 5,423) | 4,336) | 3,776) | |
| Operating Liabilities | |||||||
| Total liabilities | 8,057) | 8,293) | 7,758) | 6,314) | 6,318) | 4,940) | |
| Less: Current portion of long-term notes payable, net | —) | —) | 350) | —) | 450) | —) | |
| Less: Long-term notes payable, net, excluding current portion | 2,284) | 2,281) | 2,278) | 1,637) | 1,635) | 2,088) | |
| Operating liabilities | 5,773) | 6,012) | 5,130) | 4,677) | 4,234) | 2,852) | |
| Net operating assets1 | 1,893) | 1,354) | 1,713) | 746) | 102) | 923) | |
| Balance-sheet-based aggregate accruals2 | 539) | (359) | 967) | 644) | (821) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 33.20% | -23.39% | 78.69% | 151.86% | -160.20% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Accenture PLC | 35.69% | 16.32% | 21.70% | 27.93% | — | — | |
| Adobe Inc. | -3.83% | 1.85% | -8.24% | 14.14% | — | — | |
| AppLovin Corp. | -0.63% | -1.52% | 36.28% | — | — | — | |
| Cadence Design Systems Inc. | 39.84% | 11.17% | 26.65% | — | — | — | |
| Datadog Inc. | -28.51% | -35.73% | 17.56% | — | — | — | |
| International Business Machines Corp. | 2.79% | 2.42% | 1.55% | — | — | — | |
| Intuit Inc. | 3.35% | -1.74% | 85.68% | — | — | — | |
| Microsoft Corp. | 52.18% | 22.96% | 42.27% | — | — | — | |
| Oracle Corp. | 4.30% | 51.77% | 9.90% | — | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 89.91% | 137.01% | -124.73% | — | — | — | |
| Salesforce Inc. | -2.46% | -2.30% | 57.74% | — | — | — | |
| ServiceNow Inc. | 22.91% | 61.79% | 12.89% | — | — | — | |
| Synopsys Inc. | 7.85% | 13.85% | 5.01% | 0.36% | — | — | |
| Workday Inc. | 28.44% | -11.24% | 55.93% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 26.12% | 18.31% | 29.53% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 20.88% | 8.81% | 19.09% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2024-01-31), 10-K (reporting date: 2023-01-31), 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-01-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 7,666 – 5,773 = 1,893
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 1,893 – 1,354 = 539
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 539 ÷ [(1,893 + 1,354) ÷ 2] = 33.20%
4 Click competitor name to see calculations.
The analysis of aggregate accruals reveals significant volatility in financial reporting quality metrics over the five-year period ending January 31, 2024. While net operating assets have exhibited a strong overall growth trajectory, the balance-sheet-based accruals ratio has fluctuated substantially, indicating inconsistent relationships between accounting earnings and cash flow patterns.
- Net Operating Assets
- A substantial upward trend is observed in net operating assets, which increased from US$ 102 million in 2020 to US$ 1,893 million in 2024. Despite a moderate contraction in 2023, where values decreased to US$ 1,354 million, the overall progression indicates a significant expansion of the operating asset base.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals demonstrated high instability, alternating between negative and positive values. The figures shifted from a negative US$ 821 million in 2020 to a peak of US$ 967 million in 2022. This was followed by a reversal to negative US$ 359 million in 2023, before returning to a positive US$ 539 million in 2024.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio exhibited extreme variance, characterized by a sharp reversal from -160.20% in 2020 to 151.86% in 2021. The ratio subsequently declined to 78.69% in 2022 and returned to negative territory in 2023 at -23.39%, eventually settling at 33.20% in 2024. Such volatility suggests periodic discrepancies between reported net income and realized cash flows, which may impact the assessment of earnings quality over the analyzed period.
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Cash-Flow-Statement-Based Accruals Ratio
Autodesk Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Jan 31, 2024 | Jan 31, 2023 | Jan 31, 2022 | Jan 31, 2021 | Jan 31, 2020 | Jan 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income (loss) | 906) | 823) | 497) | 1,208) | 215) | (81) | |
| Less: Net cash provided by operating activities | 1,313) | 2,071) | 1,531) | 1,437) | 1,415) | 377) | |
| Less: Net cash used in investing activities | (502) | (143) | (1,595) | (404) | (57) | (710) | |
| Cash-flow-statement-based aggregate accruals | 95) | (1,105) | 560) | 175) | (1,143) | 252) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 5.85% | -72.07% | 45.59% | 41.27% | -223.04% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Accenture PLC | 24.31% | -0.19% | 11.87% | 11.80% | — | — | |
| Adobe Inc. | -21.90% | -21.73% | -19.93% | 9.21% | — | — | |
| AppLovin Corp. | -10.24% | -15.40% | 22.07% | — | — | — | |
| Cadence Design Systems Inc. | 17.36% | 3.78% | 15.03% | — | — | — | |
| Datadog Inc. | 30.92% | 53.36% | -34.44% | — | — | — | |
| International Business Machines Corp. | -3.73% | 0.99% | -7.22% | — | — | — | |
| Intuit Inc. | -8.44% | -8.74% | 25.60% | — | — | — | |
| Microsoft Corp. | 30.89% | 5.22% | 13.42% | — | — | — | |
| Oracle Corp. | -1.01% | 42.79% | -30.58% | — | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 33.84% | -37.95% | -196.64% | — | — | — | |
| Salesforce Inc. | -8.44% | -8.49% | 21.96% | — | — | — | |
| ServiceNow Inc. | -7.12% | 15.44% | 8.80% | — | — | — | |
| Synopsys Inc. | -7.64% | 0.20% | -4.64% | -4.88% | — | — | |
| Workday Inc. | 34.56% | 18.64% | -0.65% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 12.11% | 7.33% | 2.29% | 21.87% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 5.99% | 1.37% | 3.25% | 15.65% | — | — | |
Based on: 10-K (reporting date: 2024-01-31), 10-K (reporting date: 2023-01-31), 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-01-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 95 ÷ [(1,893 + 1,354) ÷ 2] = 5.85%
2 Click competitor name to see calculations.
The financial data exhibits a significant expansion in net operating assets alongside high volatility in aggregate accruals and the resulting accruals ratio over the five-year period ending January 31, 2024.
- Net Operating Assets Trend
- Net operating assets demonstrated a strong overall upward trajectory, increasing from 102 million US dollars in 2020 to 1,893 million US dollars in 2024. A temporary contraction occurred in 2023, where assets decreased to 1,354 million US dollars before rebounding to a period peak in 2024.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals showed extreme variance, fluctuating between significant negative and positive values. Substantial negative accruals were recorded in 2020 (-1,143 million US dollars) and 2023 (-1,105 million US dollars), while positive peaks occurred in 2022 at 560 million US dollars. This pattern indicates frequent shifts between periods where cash flows exceeded accrual-based earnings and periods where accrual-based earnings exceeded cash flows.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the volatility of the aggregate accruals, displaying wide swings in percentage terms. The ratio shifted from a deeply negative -223.04% in 2020 to a positive range of 41.27% and 45.59% during 2021 and 2022. A sharp reversal followed in 2023, dropping to -72.07%, before normalizing to 5.85% in 2024. These fluctuations suggest a dynamic relationship between reported earnings and actual cash generation, with the 2024 figure indicating a much closer alignment between accruals and operating assets than observed in prior years.
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