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
Expand Energy Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|
| Operating Assets | |||||
| Total assets | 27,894) | 14,376) | 15,468) | 11,009) | |
| Less: Cash and cash equivalents | 317) | 1,079) | 130) | 905) | |
| Less: Restricted cash | 78) | 74) | 62) | 9) | |
| Operating assets | 27,499) | 13,223) | 15,276) | 10,095) | |
| Operating Liabilities | |||||
| Total liabilities | 10,329) | 3,647) | 6,344) | 5,338) | |
| Less: Current maturities of long-term debt, net | 389) | —) | —) | —) | |
| Less: Long-term debt, net, excluding current maturities | 5,291) | 2,028) | 3,093) | 2,278) | |
| Operating liabilities | 4,649) | 1,619) | 3,251) | 3,060) | |
| Net operating assets1 | 22,850) | 11,604) | 12,025) | 7,035) | |
| Balance-sheet-based aggregate accruals2 | 11,246) | (421) | 4,990) | —) | |
| Financial Ratio | |||||
| Balance-sheet-based accruals ratio3 | 65.28% | -3.56% | 52.36% | — | |
| Benchmarks | |||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||
| Chevron Corp. | -2.10% | 5.21% | 0.03% | -3.43% | |
| ConocoPhillips | 29.59% | 10.61% | -5.86% | 44.50% | |
| Exxon Mobil Corp. | 26.07% | 3.91% | -1.19% | -4.87% | |
| Occidental Petroleum Corp. | 18.30% | -0.56% | 3.65% | -11.15% | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||
| Oil, Gas & Consumable Fuels | 17.00% | 4.71% | -0.84% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||
| Energy | 16.21% | 4.84% | -0.61% | — | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 27,499 – 4,649 = 22,850
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 22,850 – 11,604 = 11,246
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 11,246 ÷ [(22,850 + 11,604) ÷ 2] = 65.28%
4 Click competitor name to see calculations.
The financial data indicates significant fluctuations in the key measures of operating assets and accruals over the three reported years.
- Net Operating Assets
- The net operating assets decreased slightly from 12,025 million US dollars at the end of 2022 to 11,604 million US dollars at the end of 2023, representing a moderate contraction. However, this measure then experienced a dramatic increase to 22,850 million US dollars by the end of 2024, nearly doubling the 2023 figure. This suggests a considerable expansion in the company's operating asset base in the most recent year.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals showed a sharp reversal in trend during the period. Beginning at 4,990 million US dollars in 2022, they dropped to a negative value of -421 million US dollars in 2023, indicating a potential reversal or correction in accrual components. By 2024, accruals surged to 11,246 million US dollars, a level more than double the initial figure from 2022. This volatility reflects notable changes in accrual accounting components over time.
- Balance-sheet-based Accruals Ratio
- The accruals ratio demonstrates a corresponding volatile pattern. Starting high at 52.36% in 2022, it fell sharply into negative territory at -3.56% in 2023, suggesting an unusual or possible reversal in accruals relative to assets. In 2024, the ratio increased markedly to 65.28%, surpassing the initial year's ratio significantly. The swings in this ratio may indicate fluctuations in the quality or composition of earnings and accruals during the period.
Overall, the data reveals considerable variability in accrual measures and net operating assets, particularly in 2023 where a dip in accruals and asset base is observed, followed by substantial growth in 2024. The marked changes in the accruals ratio suggest shifts in accounting practices, earnings quality, or operational dynamics that warrant further investigation to understand their impact on financial reporting integrity and operational performance.
Cash-Flow-Statement-Based Accruals Ratio
Expand Energy Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|
| Net income (loss) | (714) | 2,419) | 4,936) | 6,328) | |
| Less: Net cash provided by operating activities | 1,565) | 2,380) | 4,125) | 1,788) | |
| Less: Net cash (used in) provided by investing activities | (1,904) | 473) | (3,401) | (916) | |
| Cash-flow-statement-based aggregate accruals | (375) | (434) | 4,212) | 5,456) | |
| Financial Ratio | |||||
| Cash-flow-statement-based accruals ratio1 | -2.18% | -3.67% | 44.20% | — | |
| Benchmarks | |||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||
| Chevron Corp. | -2.83% | 0.58% | -1.22% | -4.57% | |
| ConocoPhillips | 0.37% | 5.11% | -1.56% | -0.78% | |
| Exxon Mobil Corp. | -0.55% | -0.04% | -2.93% | -6.69% | |
| Occidental Petroleum Corp. | 11.03% | -1.30% | 2.84% | -13.52% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||
| Oil, Gas & Consumable Fuels | -0.02% | 0.66% | -1.62% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||
| Energy | 0.15% | 0.69% | -1.32% | — | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -375 ÷ [(22,850 + 11,604) ÷ 2] = -2.18%
2 Click competitor name to see calculations.
- Net operating assets
- The net operating assets increased notably from $12,025 million in 2022 to $22,850 million in 2024, after a slight decline to $11,604 million in 2023. This indicates a significant expansion in operating asset base in the final year, reversing the prior year's decrease.
- Cash-flow-statement-based aggregate accruals
- The aggregate accruals declined sharply from a positive $4,212 million in 2022 to negative values in 2023 and 2024, registering -$434 million and -$375 million respectively. This shift from a substantial positive figure to negative figures suggests a marked deterioration or change in accrual accounting components affecting cash flow reconciliation.
- Cash-flow-statement-based accruals ratio
- The accruals ratio moved from a high positive 44.2% in 2022 to negative values of -3.67% in 2023 and -2.18% in 2024. This trend corroborates the changes observed in aggregate accruals, reflecting a decrease in the proportion of accruals relative to net operating assets, indicating a possible improvement in accrual quality or a reduction in accrual items relative to asset size after 2022.