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. | — | — | — | — | — | |
| Home Depot Inc. | — | — | — | — | — | |
| Lowe’s Cos. Inc. | — | — | — | — | — | |
| TJX Cos. Inc. | — | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Discretionary Distribution & Retail | 200.00% | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 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.
The financial reporting quality metrics for the period between 2018 and 2021 exhibit significant volatility, particularly concerning the relationship between aggregate accruals and net operating assets.
- Net Operating Assets Trend
- Net operating assets experienced fluctuations throughout the analyzed period. After a decrease from 6,668 million USD in 2018 to 5,869 million USD in 2019, a notable increase occurred in 2020, peaking at 8,096 million USD. By December 31, 2021, this figure declined to 5,997 million USD, returning to levels comparable to 2019.
- Aggregate Accruals Performance
- Balance-sheet-based aggregate accruals demonstrate extreme variance. The values were negative in 2018 (-348 million USD) and 2019 (-799 million USD), followed by a sharp reversal to a positive 2,227 million USD in 2020. A subsequent and significant swing occurred in 2021, with accruals falling to -2,099 million USD.
- Accruals Ratio Analysis
- The balance-sheet-based accruals ratio mirrors the volatility of the aggregate accruals. The ratio moved from -5.08% in 2018 to -12.75% in 2019, before spiking to 31.89% in 2020. The period concluded with a steep decline to -29.79% in 2021. This pattern of dramatic oscillations suggests substantial shifts in the timing of revenue and expense recognition relative to cash flows, indicating potential instability in reporting quality during the 2020-2021 window.
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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. | — | — | — | — | — | |
| Home Depot Inc. | — | — | — | — | — | |
| Lowe’s Cos. Inc. | — | — | — | — | — | |
| TJX Cos. Inc. | — | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Discretionary Distribution & Retail | 50.12% | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 21.63% | — | — | — | — | |
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.
The financial reporting quality, as measured by the cash-flow-statement-based accruals ratio, exhibits significant volatility between 2018 and 2021. The relationship between net operating assets and aggregate accruals indicates substantial fluctuations in the alignment between reported accounting earnings and actual cash flow generation.
- Net Operating Assets Trend
- Net operating assets demonstrated a non-linear trajectory, starting at 6,668 million USD in 2018 and decreasing to 5,869 million USD in 2019. A significant spike occurred in 2020, with assets rising to 8,096 million USD, followed by a contraction to 5,997 million USD in 2021.
- Aggregate Accruals and Ratio Analysis
- From 2018 to 2019, aggregate accruals remained negative at -1,010 million USD and -649 million USD, respectively, resulting in accruals ratios of -14.76% and -10.35%. This suggests that cash flows from operations exceeded reported earnings during this period. A reversal occurred in 2020, where aggregate accruals turned positive at 1,485 million USD, shifting the accruals ratio to 21.27%, indicating that reported earnings exceeded cash flows.
- Fiscal Year 2021 Divergence
- A sharp divergence is observed in 2021, as aggregate accruals fell to -2,805 million USD. This resulted in a substantial decrease in the accruals ratio to -39.81%. The magnitude of this negative ratio indicates a period where cash flows significantly outperformed reported earnings, which may reflect aggressive earnings conservatism or a major reallocation of operating assets.
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