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.
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CSX Corp. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
- Analysis of Revenues
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Balance-Sheet-Based Accruals Ratio
CSX Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current maturities 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 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Airlines Holdings Inc. | ||||||
| United Parcel Service Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= – =
3 2022 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 have shown a steady increase over the four-year period from December 31, 2019, to December 31, 2022. Specifically, the value increased from $26,147 million in 2019 to $28,585 million in 2022, representing a gradual upward trend. This indicates a consistent expansion of the company's net resources devoted to operations.
- Balance-sheet-based Aggregate Accruals
- The balance-sheet-based aggregate accruals exhibited a marked upward trend during the same period. Starting from negative $79 million in 2019, the accruals shifted into positive territory by 2020, reaching $537 million, and continued to rise substantially to $1,035 million in 2022. This increasing magnitude of accruals could suggest more aggressive revenue recognition or expense deferrals over time.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, also rose steadily. It moved from -0.3% in 2019, which indicates a slight release of accruals relative to net operating assets, to 3.69% in 2022. The continuous increase in this ratio corroborates the growth in aggregate accruals and may imply a trend toward higher accrual-based earnings components relative to operating assets.
Cash-Flow-Statement-Based Accruals Ratio
CSX Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net earnings | ||||||
| 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 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Airlines Holdings Inc. | ||||||
| United Parcel Service Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 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 consistent upward trend over the four-year period. Starting at 26,147 million US dollars in 2019, they increased gradually each year, reaching 28,585 million US dollars by the end of 2022. This steady growth suggests expansion or increased investment in operating assets.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals exhibit more volatility compared to net operating assets. In 2019, the figure was positive at 583 million US dollars but shifted sharply to a negative value of -849 million in 2020, indicating a reversal in accrual accounting. Subsequently, the value returned to positive figures in 2021 and 2022, recorded at 559 million and 678 million US dollars respectively. This fluctuation points to variability in earnings quality or timing differences between cash flows and reported earnings.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the volatility seen in aggregate accruals. It started at 2.23% in 2019, dropped to a significant negative ratio of -3.21% in 2020, and then rebounded to positive values of 2.06% and 2.42% in 2021 and 2022 respectively. The negative ratio in 2020 suggests that cash flows exceeded earnings, possibly reflecting a timing difference or earnings management for that year. The return to positive ratios indicates a normalization of accruals relative to net operating assets.