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
Expedia Group Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 21,548) | 18,690) | 21,416) | 18,033) | 18,516) | |
| Less: Cash and cash equivalents | 4,111) | 3,363) | 3,315) | 2,443) | 2,847) | |
| Less: Restricted cash and cash equivalents | 1,694) | 772) | 779) | 259) | 69) | |
| Less: Short-term investments | 200) | 24) | 526) | 28) | 469) | |
| Operating assets | 15,543) | 14,531) | 16,796) | 15,303) | 15,131) | |
| Operating Liabilities | ||||||
| Total liabilities | 17,996) | 14,651) | 15,865) | 12,352) | 12,365) | |
| Less: Current maturities of long-term debt | 735) | —) | 749) | —) | 500) | |
| Less: Long-term debt, excluding current maturities | 7,715) | 8,216) | 4,189) | 3,717) | 3,749) | |
| Operating liabilities | 9,546) | 6,435) | 10,927) | 8,635) | 8,116) | |
| Net operating assets1 | 5,997) | 8,096) | 5,869) | 6,668) | 7,016) | |
| Balance-sheet-based aggregate accruals2 | (2,099) | 2,227) | (799) | (348) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -29.79% | 31.89% | -12.75% | -5.08% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Amazon.com Inc. | 49.06% | — | — | — | — | |
| Home Depot Inc. | 21.77% | — | — | — | — | |
| Lowe’s Cos. Inc. | -12.39% | — | — | — | — | |
| TJX Cos. Inc. | -109.84% | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Discretionary Distribution & Retail | 31.88% | 200.00% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 12.78% | 200.00% | — | — | — | |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Net operating assets = Operating assets – Operating liabilities
= 15,543 – 9,546 = 5,997
2 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2021 – Net operating assets2020
= 5,997 – 8,096 = -2,099
3 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,099 ÷ [(5,997 + 8,096) ÷ 2] = -29.79%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited fluctuations over the four-year period. Initially, there was a decrease from 6,668 million US dollars in 2018 to 5,869 million in 2019. Subsequently, the value rose significantly to 8,096 million in 2020, before declining again to 5,997 million in 2021. This pattern indicates variability in the company's operational investment levels, with notable increases and decreases rather than a consistent trend.
- Balance-Sheet-Based Aggregate Accruals
- The balance-sheet-based aggregate accruals showed high volatility. Starting with a negative value of -348 million US dollars in 2018, the figure further deteriorated to -799 million in 2019. In 2020, there was a marked reversal, with aggregate accruals rising sharply to a positive 2,227 million. However, this was followed by a substantial negative shift to -2,099 million in 2021. This wide fluctuation suggests irregularities or significant changes in the timing of revenue and expense recognition across the years analyzed.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, reflects the intensity and direction of accruals relative to net operating assets. It decreased from -5.08% in 2018 to a more negative -12.75% in 2019, then sharply increased to 31.89% in 2020, indicating a major increase in accruals relative to assets. In 2021, the ratio swung back to a negative -29.79%, underscoring the significant volatility in accrual levels. These large oscillations imply fluctuating earnings quality and potential volatility in reported earnings components during the period.
Cash-Flow-Statement-Based Accruals Ratio
Expedia Group Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Expedia Group, Inc. | 12) | (2,612) | 565) | 406) | 378) | |
| Less: Net cash provided by (used in) operating activities | 3,748) | (3,834) | 2,767) | 1,975) | 1,799) | |
| Less: Net cash used in investing activities | (931) | (263) | (1,553) | (559) | (1,582) | |
| Cash-flow-statement-based aggregate accruals | (2,805) | 1,485) | (649) | (1,010) | 161) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -39.81% | 21.27% | -10.35% | -14.76% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Amazon.com Inc. | 48.44% | — | — | — | — | |
| Home Depot Inc. | 14.26% | — | — | — | — | |
| Lowe’s Cos. Inc. | -17.28% | — | — | — | — | |
| TJX Cos. Inc. | -121.39% | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Discretionary Distribution & Retail | 29.06% | 27.98% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 11.50% | 6.55% | — | — | — | |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,805 ÷ [(5,997 + 8,096) ÷ 2] = -39.81%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited a fluctuating trend over the analyzed period. Beginning at 6,668 million US dollars at the end of 2018, there was a decrease to 5,869 million in 2019, followed by a significant increase to 8,096 million in 2020. However, in 2021, net operating assets again declined to 5,997 million. These fluctuations suggest variability in the company's operating investment levels year-over-year.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals demonstrated notable volatility throughout the years. In 2018, aggregate accruals were negative at -1,010 million US dollars, indicating cash flows exceeded accounting earnings. This figure improved slightly in 2019 to -649 million before shifting to a positive 1,485 million in 2020, suggesting potential earnings quality concerns or shifts in non-cash adjustments. In 2021, the accruals plummeted sharply to -2,805 million, indicating a significant reversal and potential cash flow strengthening relative to reported earnings.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio aligns with the aggregate accruals pattern but provides a relative perspective. The ratio started at -14.76% in 2018, decreased to -10.35% in 2019, and then reversed to a positive 21.27% in 2020, indicating higher accrual accounting relative to cash flows. In 2021, this ratio dropped significantly to -39.81%, denoting an increase in cash-based earnings relative to accruals. The swing from a positive to a strongly negative ratio in 2021 highlights inconsistency in earnings quality across the periods.