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% | — | |
| ConocoPhillips | 29.59% | 10.61% | -5.86% | — | |
| ExxonMobil Holdings Corp. | 26.07% | 3.91% | -1.19% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||
| Oil, Gas & Consumable Fuels | 16.86% | 5.28% | -1.34% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||
| Energy | 16.00% | 5.39% | -1.05% | — | |
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 analysis of balance-sheet-based accruals reveals significant volatility in financial reporting quality over the three-year period ending December 31, 2024. A sharp fluctuation is observed in both the absolute value of aggregate accruals and the resulting accruals ratio, punctuated by a substantial expansion of the balance sheet in the final year.
- Net Operating Assets Trend
- Net operating assets remained relatively stable between 2022 and 2023, moving from US$ 12,025 million to US$ 11,604 million. However, a substantial increase occurred by December 31, 2024, with assets rising to US$ 22,850 million, representing an increase of approximately 96.9% over the previous year.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals exhibited extreme variance, moving from US$ 4,990 million in 2022 to a negative US$ 421 million in 2023, before surging to US$ 11,246 million in 2024. This movement indicates a transition from high accrual-based earnings to cash-flow-dominant earnings in 2023, followed by a return to high accrual levels in 2024.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors this instability, declining from 52.36% in 2022 to -3.56% in 2023, and subsequently climbing to 65.28% in 2024. The elevated ratio in 2024 indicates that a significant portion of the net operating assets is composed of accruals, suggesting that the recent growth in assets is not primarily driven by cash flows, which typically correlates with lower earnings quality.
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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% | — | |
| ConocoPhillips | 0.37% | 5.11% | -1.56% | — | |
| ExxonMobil Holdings Corp. | -0.55% | -0.04% | -2.93% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||
| Oil, Gas & Consumable Fuels | -1.20% | 0.87% | -2.11% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||
| Energy | -0.95% | 0.89% | -1.75% | — | |
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.
The financial reporting quality of Expand Energy Corp. demonstrates a significant shift in the relationship between accounting earnings and cash flow over the three-year period ending December 31, 2024. A transition is observed from high positive accruals in 2022 to negative accruals in 2023 and 2024, indicating a change in earnings quality and cash generation patterns.
- Cash-flow-statement-based Accruals Ratio
- A sharp contraction in the accruals ratio is evident, falling from 44.20% in 2022 to -3.67% in 2023, and ending at -2.18% in 2024. The high positive ratio in 2022 suggests that a substantial portion of reported earnings was not supported by cash flows. The subsequent shift to negative values indicates that cash flow from operations exceeded accrual-based net income, which is typically associated with higher earnings quality and lower reporting risk.
- Aggregate Accruals Trend
- Cash-flow-statement-based aggregate accruals moved from a positive 4,212 million US dollars in 2022 to -434 million US dollars in 2023 and -375 million US dollars in 2024. This reversal indicates that the company shifted from accumulating non-cash assets or deferring liabilities to a period where cash realizations exceeded accounting profits.
- Net Operating Assets Growth
- Net operating assets remained relatively stable between 2022 and 2023, moving from 12,025 million to 11,604 million US dollars. A significant increase occurred in 2024, with net operating assets rising to 22,850 million US dollars. Despite this nearly twofold increase in the asset base, the accruals ratio remained negative, suggesting that the growth in operating assets did not result in an increase in aggressive accrual-based accounting.
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