Stock Analysis on Net
Stock Analysis on Net

Broadcom Inc. (NASDAQ:AVGO)

$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

Broadcom Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Nov 3, 2024 Oct 29, 2023 Oct 30, 2022 Oct 31, 2021 Nov 1, 2020 Nov 3, 2019
Operating Assets
Total assets
Less: Cash and cash equivalents
Operating assets
Operating Liabilities
Total liabilities
Less: Current portion of long-term debt
Less: Long-term debt, excluding 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.
Applied Materials 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: 2024-11-03), 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: 2020-11-01), 10-K (reporting date: 2019-11-03).

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 demonstrate a downward trend from 57,345 million USD in the year ending November 1, 2020, to 49,028 million USD by October 29, 2023. This represents a gradual decrease over four years. However, there is a substantial increase in the following year, rising sharply to 125,896 million USD by November 3, 2024, which is more than double the previous year's figure.
Balance-Sheet-Based Aggregate Accruals
Aggregate accruals show a pronounced fluctuation over the period analyzed. Initially, there is a positive value of 4,632 million USD in 2020. This shifts to negative values for the next three years, reducing from -4,789 million USD in 2021 to -780 million USD in 2023, showing a decreasing magnitude of negative accruals. In 2024, there is a dramatic reversal, with aggregate accruals jumping to a significantly large positive value of 76,868 million USD.
Balance-Sheet-Based Accruals Ratio
The accruals ratio starts at 8.42% in 2020, reflecting positive accruals relative to net operating assets. In the following three years, the ratio turns negative, declining from -8.72% in 2021 to -1.58% in 2023, indicating that accruals were increasingly offsetting operating assets, but the negative impact lessened over time. In 2024, the ratio sharply escalates to 87.89%, aligning with the large increase in aggregate accruals and the net operating assets. This sudden increase suggests a pronounced change in the accrual-based component of the assets relative to prior years.
Overall Analysis
Across the five-year span, the data reveals a relatively stable to declining trend in net operating assets until 2023, followed by an extraordinary rise in 2024. Correspondingly, aggregate accruals and their ratio display a switch from moderate positive to negative values, and then to exceptionally high positive values in the last year. This pattern may indicate changes in accounting policies, asset composition, or underlying business operations affecting the quality and recognition of accrued items. The large spike in both net operating assets and accrual-related figures in 2024 warrants further investigation to understand the drivers and implications on financial reporting quality.

Cash-Flow-Statement-Based Accruals Ratio

Broadcom Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Nov 3, 2024 Oct 29, 2023 Oct 30, 2022 Oct 31, 2021 Nov 1, 2020 Nov 3, 2019
Net income
Less: Net cash provided by operating activities
Less: Net 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.
Applied Materials 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: 2024-11-03), 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: 2020-11-01), 10-K (reporting date: 2019-11-03).

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 exhibited a generally declining trend from November 1, 2020, through October 29, 2023, decreasing from $57,345 million to $49,028 million. This represents a steady contraction in net operating assets over this four-year span. However, in the most recent period ending November 3, 2024, there is a substantial increase to $125,896 million, which more than doubles the prior year's figure. This sharp rise marks a significant shift in the company’s asset base, possibly indicating major acquisitions, reclassification, or other strategic operational changes.
Cash-flow-statement-based Aggregate Accruals
Aggregate accruals based on the cash-flow statement showed notable volatility over the periods. In the initial year ending November 1, 2020, accruals were positive at $2,008 million, followed by a shift into negative territory for the next three years with values at -$6,783 million, -$4,574 million, and -$3,314 million respectively. This movement suggests a decrease in accrual-related components during these years, implying potential earnings quality concerns or asset/liability timing differences. Contrarily, the last period reflects a reversal with accruals rising to $9,003 million, the highest positive value recorded in the dataset, indicating a significant change in accrual accounting or operational cash flow dynamics.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, expressed as a percentage, follows a pattern consistent with aggregate accruals. Initially, a positive ratio of 3.65% in November 2020 indicates that accruals contributed positively relative to net operating assets. Subsequently, the ratio turns negative and declines sharply to -12.34% in 2021, then slightly improves yet remains negative at -8.94% in 2022 and -6.71% in 2023, highlighting a deteriorating quality of earnings or increased reliance on accruals rather than cash flows. In the final year, there is a marked improvement with the ratio climbing back into positive territory at 10.29%, signaling enhanced earnings quality or a shift towards cash-based accounting gains.