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
Costco Wholesale Corp., balance sheet computation of aggregate accruals
US$ in millions
| Aug 30, 2026 | Aug 31, 2025 | Sep 1, 2024 | Sep 3, 2023 | Aug 28, 2022 | Aug 29, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 89,045) | 77,099) | 69,831) | 68,994) | 64,166) | 59,268) | |
| Less: Cash and cash equivalents | 20,207) | 14,161) | 9,906) | 13,700) | 10,203) | 11,258) | |
| Less: Short-term investments | 1,094) | 1,123) | 1,238) | 1,534) | 846) | 917) | |
| Operating assets | 67,744) | 61,815) | 58,687) | 53,760) | 53,117) | 47,093) | |
| Operating Liabilities | |||||||
| Total liabilities | 53,242) | 47,935) | 46,209) | 43,936) | 43,519) | 41,190) | |
| Less: Current portion of long-term debt | 2,248) | 75) | 103) | 1,081) | 73) | 799) | |
| Less: Current finance lease liabilities | 94) | 78) | 147) | 129) | 245) | 72) | |
| Less: Long-term debt, excluding current portion | 3,914) | 5,713) | 5,794) | 5,377) | 6,484) | 6,692) | |
| Less: Long-term finance lease liabilities | 1,319) | 1,401) | 1,351) | 1,303) | 1,383) | 980) | |
| Operating liabilities | 45,667) | 40,668) | 38,814) | 36,046) | 35,334) | 32,647) | |
| Net operating assets1 | 22,077) | 21,147) | 19,873) | 17,714) | 17,783) | 14,446) | |
| Balance-sheet-based aggregate accruals2 | 930) | 1,274) | 2,159) | (69) | 3,337) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 4.30% | 6.21% | 11.49% | -0.39% | 20.71% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Target Corp. | 4.87% | 0.70% | 2.06% | 19.69% | 10.33% | — | |
| Walmart Inc. | 8.91% | 5.23% | 6.15% | 0.02% | 1.09% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 0.00% | 4.68% | 6.12% | 2.78% | 4.30% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 0.00% | 7.28% | 1.15% | 2.58% | 7.61% | — | |
Based on: 10-K (reporting date: 2026-08-30), 10-K (reporting date: 2025-08-31), 10-K (reporting date: 2024-09-01), 10-K (reporting date: 2023-09-03), 10-K (reporting date: 2022-08-28), 10-K (reporting date: 2021-08-29).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 67,744 – 45,667 = 22,077
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 22,077 – 21,147 = 930
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 930 ÷ [(22,077 + 21,147) ÷ 2] = 4.30%
4 Click competitor name to see calculations.
The financial trajectory from 2022 to 2026 is characterized by a steady expansion of the operating asset base contrasted with significant volatility and a subsequent decline in the balance-sheet-based accruals ratio. While net operating assets grew consistently, the reliance on accruals relative to those assets diminished over the latter half of the period.
- Net Operating Assets Trend
- An overall upward trend is observed in net operating assets, which rose from 17,783 million US dollars in 2022 to 22,077 million US dollars by 2026. Aside from a marginal decrease between 2022 and 2023, the operating asset base expanded steadily, reflecting a growth in the scale of operations.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals demonstrated substantial instability between 2022 and 2024. A sharp decline from 3,337 million US dollars in 2022 to negative 69 million US dollars in 2023 was followed by a rebound to 2,159 million US dollars in 2024. However, a consistent downward pattern emerged after 2024, with accruals falling to 1,274 million US dollars in 2025 and 930 million US dollars in 2026.
- Accruals Ratio and Reporting Quality
- The balance-sheet-based accruals ratio mirrored the volatility of aggregate accruals, peaking at 20.71% in 2022 before dropping to -0.39% in 2023. Following a return to 11.49% in 2024, the ratio declined progressively to 6.21% in 2025 and 4.30% in 2026. This sustained reduction in the ratio indicates an improvement in financial reporting quality, as earnings became increasingly supported by cash flows rather than accounting accruals relative to the size of the operating assets.
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Cash-Flow-Statement-Based Accruals Ratio
Costco Wholesale Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Aug 30, 2026 | Aug 31, 2025 | Sep 1, 2024 | Sep 3, 2023 | Aug 28, 2022 | Aug 29, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income attributable to Costco | 9,226) | 8,099) | 7,367) | 6,292) | 5,844) | 5,007) | |
| Less: Net cash provided by operating activities | 15,817) | 13,335) | 11,339) | 11,068) | 7,392) | 8,958) | |
| Less: Net cash used in investing activities | (6,378) | (5,311) | (4,409) | (4,972) | (3,915) | (3,535) | |
| Cash-flow-statement-based aggregate accruals | (213) | 75) | 437) | 196) | 2,367) | (416) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -0.99% | 0.37% | 2.33% | 1.10% | 14.69% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Target Corp. | 2.99% | -1.62% | 1.09% | 18.64% | 7.52% | — | |
| Walmart Inc. | 4.75% | 3.34% | 0.87% | 0.47% | -3.77% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 0.00% | 2.27% | 1.06% | 3.13% | -0.42% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 0.00% | 3.80% | -0.17% | 2.27% | 4.81% | — | |
Based on: 10-K (reporting date: 2026-08-30), 10-K (reporting date: 2025-08-31), 10-K (reporting date: 2024-09-01), 10-K (reporting date: 2023-09-03), 10-K (reporting date: 2022-08-28), 10-K (reporting date: 2021-08-29).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -213 ÷ [(22,077 + 21,147) ÷ 2] = -0.99%
2 Click competitor name to see calculations.
An analysis of the financial reporting quality reveals a significant divergence between the growth of net operating assets and the trajectory of aggregate accruals over the observed five-year period. While the asset base has expanded, the reliance on accruals to drive reported earnings has diminished substantially, indicating a shift toward higher cash-flow alignment.
- Net Operating Assets Trend
- Net operating assets demonstrated a consistent upward trajectory after a marginal decline in 2023. Values rose from 17,783 million USD in August 2022 to 22,077 million USD by August 2026, representing a steady expansion of the operational asset base.
- Aggregate Accruals Performance
- Cash-flow-statement-based aggregate accruals experienced a sharp contraction, falling from a peak of 2,367 million USD in 2022 to 196 million USD in 2023. Following a slight increase to 437 million USD in 2024, the figures continued to decline, eventually turning negative at -213 million USD in 2026.
- Accruals Ratio Interpretation
- The accruals ratio reflects a marked improvement in earnings quality. The ratio dropped precipitously from 14.69% in 2022 to 1.10% in 2023. It remained low through 2025 (0.37%) before reaching -0.99% in 2026. This transition from a high positive ratio to a negative ratio suggests that reported earnings are increasingly supported by cash flows rather than accounting accruals.
The convergence of increasing net operating assets and decreasing aggregate accruals indicates a strengthening of financial reporting quality. The movement into negative territory for both aggregate accruals and the accruals ratio by 2026 suggests a conservative earnings profile where cash generation exceeds accrual-based recognition.
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