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
Cisco Systems Inc., balance sheet computation of aggregate accruals
US$ in millions
| Jul 26, 2025 | Jul 27, 2024 | Jul 29, 2023 | Jul 30, 2022 | Jul 31, 2021 | Jul 25, 2020 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 122,291) | 124,413) | 101,852) | 94,002) | 97,497) | 94,853) | |
| Less: Cash and cash equivalents | 8,346) | 7,508) | 10,123) | 7,079) | 9,175) | 11,809) | |
| Less: Investments | 7,764) | 10,346) | 16,023) | 12,188) | 15,343) | 17,610) | |
| Operating assets | 106,181) | 106,559) | 75,706) | 74,735) | 72,979) | 65,434) | |
| Operating Liabilities | |||||||
| Total liabilities | 75,448) | 78,956) | 57,499) | 54,229) | 56,222) | 56,933) | |
| Less: Short-term debt | 5,232) | 11,341) | 1,733) | 1,099) | 2,508) | 3,005) | |
| Less: Long-term debt, excluding current portion | 22,861) | 19,621) | 6,658) | 8,416) | 9,018) | 11,578) | |
| Operating liabilities | 47,355) | 47,994) | 49,108) | 44,714) | 44,696) | 42,350) | |
| Net operating assets1 | 58,826) | 58,565) | 26,598) | 30,021) | 28,283) | 23,084) | |
| Balance-sheet-based aggregate accruals2 | 261) | 31,967) | (3,423) | 1,738) | 5,199) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 0.44% | 75.07% | -12.09% | 5.96% | 20.24% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Apple Inc. | 17.98% | -12.64% | -9.04% | -2.12% | 36.09% | — | |
| Arista Networks Inc. | — | -26.64% | 17.14% | 106.22% | 24.14% | — | |
| Dell Technologies Inc. | 18.00% | -9.55% | 12.16% | -89.81% | -10.71% | — | |
| Super Micro Computer Inc. | -0.54% | 105.88% | 3.74% | 58.35% | 8.42% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | 0.00% | 11.96% | -6.96% | -13.35% | 22.01% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 21.35% | 8.92% | 18.19% | 19.59% | — | |
Based on: 10-K (reporting date: 2025-07-26), 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 106,181 – 47,355 = 58,826
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 58,826 – 58,565 = 261
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 261 ÷ [(58,826 + 58,565) ÷ 2] = 0.44%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited a general upward trend over the reported periods, increasing from 28,283 million USD in July 2021 to 58,826 million USD in July 2025. Despite a temporary decline observed in July 2023, where the value dropped to 26,598 million USD from 30,021 million USD in July 2022, the overall trajectory indicates significant asset growth, particularly marked by a sharp rise to 58,565 million USD in July 2024, which then stabilized slightly by the following year.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals demonstrated significant volatility across the periods. Starting at 5,199 million USD in July 2021, the figure sharply decreased to 1,738 million USD in July 2022, followed by a negative value of -3,423 million USD in July 2023, indicating a reversal or reduction in accrued items. This trend reversed dramatically with an anomalous spike to 31,967 million USD in July 2024, before normalizing considerably to 261 million USD in July 2025. Such fluctuations suggest periods of considerable changes in accrual accounting or adjustments in the operating cycle.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the volatility seen in aggregate accruals, revealing substantial fluctuations in the relationship between accruals and net operating assets. Beginning at 20.24% in July 2021, the ratio decreased steadily to 5.96% in July 2022, then turned negative to -12.09% in July 2023, reflecting the negative aggregate accruals at that time. The ratio then surged dramatically to 75.07% in July 2024, indicating a disproportionately high level of accruals compared to net operating assets that year, before sharply declining to 0.44% in July 2025, suggesting a return to a more normalized accrual level.
Cash-Flow-Statement-Based Accruals Ratio
Cisco Systems Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Jul 26, 2025 | Jul 27, 2024 | Jul 29, 2023 | Jul 30, 2022 | Jul 31, 2021 | Jul 25, 2020 | ||
|---|---|---|---|---|---|---|---|
| Net income | 10,180) | 10,320) | 12,613) | 11,812) | 10,591) | 11,214) | |
| Less: Net cash provided by operating activities | 14,193) | 10,880) | 19,886) | 13,226) | 15,454) | 15,426) | |
| Less: Net cash (used in) provided by investing activities | 1,733) | (20,478) | (5,107) | 1,553) | (5,285) | 3,500) | |
| Cash-flow-statement-based aggregate accruals | (5,746) | 19,918) | (2,166) | (2,967) | 422) | (7,712) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -9.79% | 46.78% | -7.65% | -10.18% | 1.64% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Apple Inc. | -13.44% | -25.90% | -14.62% | 0.00% | 4.86% | — | |
| Arista Networks Inc. | — | 82.06% | 36.37% | 52.90% | 147.50% | — | |
| Dell Technologies Inc. | 12.75% | -15.65% | 11.23% | -20.97% | -17.42% | — | |
| Super Micro Computer Inc. | -7.24% | 98.99% | 0.89% | 56.84% | 5.08% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | 0.00% | -2.79% | -10.03% | -4.10% | -0.72% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 6.25% | 1.40% | 2.99% | 8.76% | — | |
Based on: 10-K (reporting date: 2025-07-26), 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -5,746 ÷ [(58,826 + 58,565) ÷ 2] = -9.79%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrate a fluctuating trend over the observed periods. Initially, there is a moderate increase from approximately 28,283 million USD in mid-2021 to 30,021 million USD in mid-2022. This is followed by a decline to 26,598 million USD one year later. Subsequently, a substantial surge occurs, nearly doubling the figure to 58,565 million USD in mid-2024, with a slight increase to 58,826 million USD in mid-2025. This pattern suggests significant operational asset acquisitions or revaluation occurring primarily between 2023 and 2024.
- Cash-Flow-Statement-Based Aggregate Accruals
- There is notable volatility in aggregate accruals over the time span. The measure starts positive at 422 million USD in 2021 but then shifts markedly to negative values in the following two years, reaching -2,967 million USD in 2022 and -2,166 million USD in 2023. In 2024, there is a dramatic reversal with a sharp increase to 19,918 million USD, which is the highest value across the periods examined. The following year, the metric falls back into negative territory at -5,746 million USD. This pattern reflects considerable fluctuations in earnings quality and adjustments related to non-cash items affecting the cash flow.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio exhibits a similar pattern of variability. It begins at a modest positive level of 1.64% in 2021 but declines sharply to -10.18% in 2022 and slightly improves to -7.65% in 2023. In 2024, the ratio skyrockets to 46.78%, indicating a substantial proportion of accruals compared to cash flows, which may indicate aggressive accounting or one-time adjustments during that period. The ratio then reverts to a negative value of -9.79% in 2025, consistent with the negative aggregate accruals in the same year. Such fluctuations may imply inconsistency in earnings quality and potential challenges in cash flow predictability.