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
Broadcom Inc., balance sheet computation of aggregate accruals
US$ in millions
| Nov 3, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Nov 1, 2020 | Nov 3, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 165,645) | 72,861) | 73,249) | 75,570) | 75,933) | 67,493) | |
| Less: Cash and cash equivalents | 9,348) | 14,189) | 12,416) | 12,163) | 7,618) | 5,055) | |
| Operating assets | 156,297) | 58,672) | 60,833) | 63,407) | 68,315) | 62,438) | |
| Operating Liabilities | |||||||
| Total liabilities | 97,967) | 48,873) | 50,540) | 50,581) | 52,032) | 42,523) | |
| Less: Current portion of long-term debt | 1,271) | 1,608) | 440) | 290) | 827) | 2,787) | |
| Less: Long-term debt, excluding current portion | 66,295) | 37,621) | 39,075) | 39,440) | 40,235) | 30,011) | |
| Operating liabilities | 30,401) | 9,644) | 11,025) | 10,851) | 10,970) | 9,725) | |
| Net operating assets1 | 125,896) | 49,028) | 49,808) | 52,556) | 57,345) | 52,713) | |
| Balance-sheet-based aggregate accruals2 | 76,868) | (780) | (2,748) | (4,789) | 4,632) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 87.89% | -1.58% | -5.37% | -8.72% | 8.42% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Advanced Micro Devices Inc. | 2.94% | 2.36% | 169.75% | 8.05% | — | — | |
| Analog Devices Inc. | -2.83% | 0.03% | -2.94% | 90.70% | -2.85% | — | |
| Applied Materials Inc. | 4.18% | 0.48% | 20.73% | 17.33% | 3.75% | — | |
| Intel Corp. | -0.91% | 13.69% | 10.73% | 11.61% | — | — | |
| KLA Corp. | -1.32% | 3.95% | 21.25% | 3.62% | — | — | |
| Lam Research Corp. | -2.70% | 1.57% | 16.02% | 8.38% | — | — | |
| Micron Technology Inc. | 5.22% | 0.78% | 12.07% | 11.51% | 7.56% | — | |
| NVIDIA Corp. | 29.90% | 18.88% | 28.31% | 115.40% | — | — | |
| Qualcomm Inc. | 7.33% | -5.53% | 68.49% | 22.56% | 20.94% | — | |
| Texas Instruments Inc. | 15.89% | 31.37% | 22.75% | 18.48% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Semiconductors & Semiconductor Equipment | 19.65% | 6.33% | 24.66% | 19.53% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 21.41% | 8.97% | 18.09% | 19.19% | 200.00% | — | |
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
= 156,297 – 30,401 = 125,896
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 125,896 – 49,028 = 76,868
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 76,868 ÷ [(125,896 + 49,028) ÷ 2] = 87.89%
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
| Nov 3, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Nov 1, 2020 | Nov 3, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | 5,895) | 14,082) | 11,495) | 6,736) | 2,960) | 2,724) | |
| Less: Net cash provided by operating activities | 19,962) | 18,085) | 16,736) | 13,764) | 12,061) | 9,697) | |
| Less: Net cash used in investing activities | (23,070) | (689) | (667) | (245) | (11,109) | (15,422) | |
| Cash-flow-statement-based aggregate accruals | 9,003) | (3,314) | (4,574) | (6,783) | 2,008) | 8,449) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 10.29% | -6.71% | -8.94% | -12.34% | 3.65% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Advanced Micro Devices Inc. | -0.56% | 1.17% | -15.28% | 8.10% | — | — | |
| Analog Devices Inc. | -2.71% | -0.57% | -2.54% | -11.85% | -3.72% | — | |
| Applied Materials Inc. | 5.35% | -2.05% | 18.18% | 14.75% | -0.54% | — | |
| Intel Corp. | -6.58% | 11.35% | 2.75% | 15.15% | — | — | |
| KLA Corp. | 16.82% | 3.66% | 18.30% | 9.27% | — | — | |
| Lam Research Corp. | -5.83% | -1.71% | 12.43% | 3.89% | — | — | |
| Micron Technology Inc. | 1.18% | -2.52% | 11.37% | 10.01% | 5.45% | — | |
| NVIDIA Corp. | 52.67% | -47.90% | 73.13% | 233.25% | — | — | |
| Qualcomm Inc. | 5.53% | -14.57% | 46.91% | 15.61% | 48.48% | — | |
| Texas Instruments Inc. | 7.93% | 26.35% | 28.24% | 29.95% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Semiconductors & Semiconductor Equipment | 3.46% | 0.45% | 7.45% | 12.36% | 7.12% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 6.30% | 1.47% | 2.90% | 8.62% | -15.22% | — | |
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 × 9,003 ÷ [(125,896 + 49,028) ÷ 2] = 10.29%
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.