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
Cash-Flow-Statement-Based Accruals Ratio

CoStar Group Inc., balance sheet computation of aggregate accruals

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Operating Assets
Total assets	8,402,470)	7,256,871)	6,915,420)	3,853,986)	3,312,957)
Less: Cash and cash equivalents	4,967,970)	3,827,126)	3,755,912)	1,070,731)	1,100,416)
Operating assets	3,434,500)	3,429,745)	3,159,508)	2,783,255)	2,212,541)
Operating Liabilities
Total liabilities	1,532,349)	1,545,199)	1,540,061)	448,393)	291,015)
Less: Long-term debt, net	989,210)	987,944)	986,715)	—)	—)
Operating liabilities	543,139)	557,255)	553,346)	448,393)	291,015)

Net operating assets¹	2,891,361)	2,872,490)	2,606,162)	2,334,862)	1,921,526)
Balance-sheet-based aggregate accruals²	18,871)	266,328)	271,300)	413,336)	—)
Financial Ratio
Balance-sheet-based accruals ratio³	0.65%	9.72%	10.98%	19.42%	—
Benchmarks
Balance-Sheet-Based Accruals Ratio, Industry
Industrials	0.29%	3.43%	200.00%	—	—

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
= 3,434,500 – 543,139 = 2,891,361

² 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets₂₀₂₂ – Net operating assets₂₀₂₁
= 2,891,361 – 2,872,490 = 18,871

³ 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 18,871 ÷ [(2,891,361 + 2,872,490) ÷ 2] = 0.65%

Net Operating Assets: The net operating assets demonstrated a consistent upward trend over the four-year period. Beginning at approximately 2.33 billion US dollars in 2019, the figure increased to around 2.61 billion in 2020, then to approximately 2.87 billion in 2021, and finally reached about 2.89 billion by the end of 2022. This steady growth indicates ongoing expansion or reinvestment in operating assets.
Balance-sheet-based Aggregate Accruals: This metric showed a significant declining trend over the reviewed period. Starting at about 413 million US dollars in 2019, it decreased to 271 million in 2020, remained relatively stable at approximately 266 million in 2021, and then dramatically dropped to roughly 19 million by the end of 2022. The sharp decline in 2022 suggests a substantial reduction in the aggregation of accruals, possibly indicating improved earnings quality or a change in accounting practices.
Balance-sheet-based Accruals Ratio: The accruals ratio, expressed as a percentage, followed a clear decreasing trend from 2019 through 2022. Starting at 19.42% in 2019, it declined to 10.98% in 2020, then further to 9.72% in 2021, and finally reached a very low level of 0.65% by the end of 2022. This marked reduction in the accrual ratio aligns with the decrease in aggregate accruals and may signify a shift towards a more cash-based or conservative earnings recognition approach over time.

CoStar Group Inc., cash flow statement computation of aggregate accruals

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income	369,453)	292,564)	227,128)	314,963)	238,334)
Less: Net cash provided by operating activities	478,620)	469,731)	486,106)	457,780)	335,458)
Less: Net cash used in investing activities	(69,055)	(381,343)	(464,163)	(483,753)	(448,001)
Cash-flow-statement-based aggregate accruals	(40,112)	204,176)	205,185)	340,936)	350,877)
Financial Ratio
Cash-flow-statement-based accruals ratio¹	-1.39%	7.45%	8.31%	16.02%	—
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials	-2.31%	-8.91%	-5.18%	—	—

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 × -40,112 ÷ [(2,891,361 + 2,872,490) ÷ 2] = -1.39%

Net Operating Assets: There is a consistent upward trend observed in net operating assets over the four-year period. The value increased from approximately 2.33 billion US dollars at the end of 2019 to nearly 2.89 billion US dollars by the end of 2022. This reflects a progressive expansion in the company's net operating asset base over time, though the rate of increase appears to slow marginally in the last year.
Cash-flow-statement-based Aggregate Accruals: The aggregate accruals values demonstrate a declining trend from 2019 through 2022. Starting at approximately 341 million US dollars at the end of 2019, the accruals decrease to about 205 million in 2020 and slightly decline again to 204 million in 2021. Notably, in 2022, the accruals turn negative to roughly -40 million, indicating a significant shift from positive to negative aggregate accruals during the last period analyzed.
Cash-flow-statement-based Accruals Ratio: The accruals ratio shows a notable downward trajectory over the period. Beginning at 16.02% in 2019, it declines sharply to 8.31% in 2020, then gradually decreases to 7.45% in 2021. By the end of 2022, the ratio turns negative, reaching -1.39%. This transition to a negative ratio suggests a fundamental change in the quality of earnings, with cash flows exceeding accruals in that final year.

CoStar Group Inc. (NASDAQ:CSGP)

Financial Reporting Quality: Aggregate Accruals

Balance-Sheet-Based Accruals Ratio

Cash-Flow-Statement-Based Accruals Ratio