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
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
Operating Assets | ||||||
Total assets | 27,708) | 24,342) | 25,361) | 23,641) | 21,874) | |
Less: Cash and cash equivalents | 16,164) | 12,107) | 12,221) | 11,127) | 10,562) | |
Less: Short-term investments | —) | 576) | 175) | 25) | 501) | |
Operating assets | 11,544) | 11,659) | 12,965) | 12,489) | 10,811) | |
Operating Liabilities | ||||||
Total liabilities | 31,728) | 27,086) | 22,579) | 17,463) | 16,981) | |
Less: Current finance lease liabilities | 26) | 34) | 21) | 4) | —) | |
Less: Short-term debt | 1,745) | 1,961) | 500) | 1,989) | 985) | |
Less: Non-current finance lease liabilities | 7) | 34) | 32) | 6) | —) | |
Less: Long-term debt | 14,853) | 12,223) | 11,985) | 8,937) | 11,029) | |
Operating liabilities | 15,097) | 12,834) | 10,041) | 6,527) | 4,967) | |
Net operating assets1 | (3,553) | (1,175) | 2,924) | 5,962) | 5,844) | |
Balance-sheet-based aggregate accruals2 | (2,378) | (4,099) | (3,038) | 118) | —) | |
Financial Ratio | ||||||
Balance-sheet-based accruals ratio3 | — | -468.72% | -68.38% | 2.00% | — | |
Benchmarks | ||||||
Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
Airbnb Inc. | — | — | — | — | — | |
Chipotle Mexican Grill Inc. | 23.30% | 18.41% | 18.43% | 13.32% | — | |
McDonald’s Corp. | 11.01% | 9.94% | 8.46% | 0.56% | — | |
Starbucks Corp. | 28.92% | 13.66% | 10.72% | -25.79% | 45.93% | |
Balance-Sheet-Based Accruals Ratio, Sector | ||||||
Consumer Services | 7.14% | 5.15% | -1.96% | -0.80% | — | |
Balance-Sheet-Based Accruals Ratio, Industry | ||||||
Consumer Discretionary | 12.16% | 12.17% | 12.67% | 12.65% | — |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 11,544 – 15,097 = -3,553
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= -3,553 – -1,175 = -2,378
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,378 ÷ [(-3,553 + -1,175) ÷ 2] = —
4 Click competitor name to see calculations.
- Net operating assets
- The net operating assets exhibit a pronounced declining trend over the observed periods. Starting at a positive value of 5962 million US dollars in 2021, the figure reduces significantly to 2924 million US dollars in 2022. This downward momentum continues into negative territory in 2023, with a value of -1175 million US dollars, and further declines to -3553 million US dollars in 2024. This shift from positive to negative values indicates a substantial reduction in operating assets relative to liabilities over time.
- Balance-sheet-based aggregate accruals
- The balance-sheet-based aggregate accruals demonstrate increasing negative values through the periods examined. Initially positive at 118 million US dollars in 2021, the measure reverses to -3038 million US dollars in 2022, and then declines further to -4099 million US dollars in 2023. In 2024, there is a slight recovery relative to the previous year, with the figure improving to -2378 million US dollars. Overall, this pattern signals a trend of rising accruals volatility and potential earnings management concerns.
- Balance-sheet-based accruals ratio
- The accruals ratio reflects a marked deterioration throughout the time frame. From a modest positive 2% in 2021, the ratio falls sharply to -68.38% in 2022, and then plummets further to -468.72% in 2023. Data for 2024 is unavailable, but the downward trajectory in the preceding years suggests increasing discrepancies between accruals and net operating assets, indicating potential issues in the quality of financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
Net income | 5,882) | 4,289) | 3,058) | 1,165) | 59) | |
Less: Net cash provided by operating activities | 8,323) | 7,344) | 6,554) | 2,820) | 85) | |
Less: Net cash (used in) provided by investing activities | 129) | 1,486) | (518) | (998) | 2,637) | |
Cash-flow-statement-based aggregate accruals | (2,570) | (4,541) | (2,978) | (657) | (2,663) | |
Financial Ratio | ||||||
Cash-flow-statement-based accruals ratio1 | — | -519.27% | -67.03% | -11.13% | — | |
Benchmarks | ||||||
Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
Airbnb Inc. | — | — | — | — | — | |
Chipotle Mexican Grill Inc. | 13.33% | 24.18% | 30.18% | -9.35% | — | |
McDonald’s Corp. | 12.31% | 6.77% | 5.35% | 2.17% | — | |
Starbucks Corp. | 9.10% | 12.06% | 36.35% | -47.73% | 36.84% | |
Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
Consumer Services | 2.51% | 0.66% | -4.61% | -8.21% | — | |
Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
Consumer Discretionary | 9.69% | 4.57% | 1.83% | 11.33% | — |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,570 ÷ [(-3,553 + -1,175) ÷ 2] = —
2 Click competitor name to see calculations.
The analysis of financial reporting quality measures over the four-year period reveals significant shifts in key metrics related to net operating assets and accruals.
- Net Operating Assets (US$ in millions)
- There is a marked decline in net operating assets from 5,962 million in 2021 to 2,924 million in 2022. Subsequently, the figure turns negative, with -1,175 million reported in 2023 and further decreasing to -3,553 million in 2024. This trend indicates a strong deterioration in operating asset values, potentially signaling operational challenges or changes in asset management.
- Cash-Flow-Statement-Based Aggregate Accruals (US$ in millions)
- This metric also demonstrates a noteworthy increasing negative magnitude over time. Starting at -657 million in 2021, it worsens to -2,978 million in 2022, reaching -4,541 million in 2023 before improving slightly to -2,570 million in 2024. The accumulation of negative accruals suggests increasing differences between accounting earnings and cash flows, which could raise concerns about earnings quality.
- Cash-Flow-Statement-Based Accruals Ratio (%)
- The accruals ratio displays extreme volatility, with a moderate negative value of -11.13% in 2021, following by a sharp plunge to -67.03% in 2022. The ratio experiences a dramatic spike to -519.27% in 2023 before data is unavailable for 2024. Such high fluctuations and extreme negative values suggest substantial deviations between net income and cash flows from operations, highlighting potential irregularities or increasing earnings management risks.
Overall, the financial reporting quality measures depict a deteriorating pattern, characterized by declining net operating assets and highly negative and volatile accruals metrics. These indicate increasing discrepancies between reported earnings and cash flows, which could affect the reliability and quality of reported financial results over the reviewed period.