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
First Solar Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 10,365,132) | 8,251,228) | 7,413,746) | 7,108,931) | 7,515,689) | |
| Less: Cash and cash equivalents | 1,946,994) | 1,481,269) | 1,450,654) | 1,227,002) | 1,352,741) | |
| Less: Marketable securities | 155,495) | 1,096,712) | 375,389) | 520,066) | 811,506) | |
| Operating assets | 8,262,643) | 5,673,247) | 5,587,703) | 5,361,863) | 5,351,442) | |
| Operating Liabilities | ||||||
| Total liabilities | 3,677,663) | 2,415,173) | 1,454,195) | 1,588,003) | 2,418,922) | |
| Less: Current portion of debt | 96,238) | —) | 3,896) | 41,540) | 17,510) | |
| Less: Finance lease liabilities, current | 51) | —) | —) | —) | —) | |
| Less: Long-term debt, noncurrent portion | 464,068) | 184,349) | 236,005) | 237,691) | 454,187) | |
| Less: Finance lease liabilities, noncurrent | 17,063) | —) | —) | —) | —) | |
| Operating liabilities | 3,100,243) | 2,230,824) | 1,214,294) | 1,308,772) | 1,947,225) | |
| Net operating assets1 | 5,162,400) | 3,442,423) | 4,373,409) | 4,053,091) | 3,404,217) | |
| Balance-sheet-based aggregate accruals2 | 1,719,977) | (930,986) | 320,318) | 648,874) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 39.98% | -23.82% | 7.60% | 17.40% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | 2.36% | 169.75% | — | — | — | |
| Analog Devices Inc. | 0.03% | -2.94% | 90.70% | — | — | |
| Applied Materials Inc. | 0.48% | 20.73% | 17.33% | — | — | |
| Broadcom Inc. | -1.58% | -5.37% | -8.72% | — | — | |
| Intel Corp. | 13.69% | 10.73% | — | — | — | |
| KLA Corp. | 3.95% | 21.25% | — | — | — | |
| Lam Research Corp. | 1.57% | 16.02% | — | — | — | |
| Marvell Technology Inc. | -2.15% | 75.44% | — | — | — | |
| Micron Technology Inc. | 0.78% | 12.07% | — | — | — | |
| NVIDIA Corp. | 18.88% | 28.31% | — | — | — | |
| Qualcomm Inc. | -5.53% | 68.49% | 22.56% | — | — | |
| Texas Instruments Inc. | 31.37% | 22.75% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | 5.94% | 26.65% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | 8.81% | 19.09% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 8,262,643 – 3,100,243 = 5,162,400
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 5,162,400 – 3,442,423 = 1,719,977
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,719,977 ÷ [(5,162,400 + 3,442,423) ÷ 2] = 39.98%
4 Click competitor name to see calculations.
The financial reporting quality of First Solar Inc. over the period from 2020 to 2023 is characterized by significant volatility in balance-sheet-based accruals and the resulting accruals ratio. While net operating assets showed moderate fluctuations, the aggregate accruals exhibited extreme swings, indicating a shifting relationship between reported earnings and actual cash flow.
- Net Operating Assets Trend
- Net operating assets grew from 4,053,091 thousand US dollars in 2020 to 4,373,409 thousand US dollars in 2021, followed by a contraction to 3,442,423 thousand US dollars in 2022. A substantial increase occurred in 2023, with assets reaching 5,162,400 thousand US dollars, the highest level in the analyzed period.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals demonstrated a non-linear trend. A downward trajectory was observed between 2020 and 2022, with values dropping from 648,874 thousand US dollars to a negative 930,986 thousand US dollars. This was followed by a sharp reversal in 2023, where accruals spiked to 1,719,977 thousand US dollars.
- Accruals Ratio Interpretation
- The balance-sheet-based accruals ratio mirrors the volatility of aggregate accruals, starting at 17.40% in 2020 and declining to 7.60% in 2021. The ratio entered negative territory in 2022 at -23.82%, suggesting that cash flows exceeded accrual-based earnings during that period. However, 2023 saw a dramatic increase to 39.98%, indicating a significant divergence where reported earnings were substantially driven by non-cash accruals relative to the net operating asset base.
The sharp transition from a negative accruals ratio in 2022 to a high positive ratio in 2023 suggests a fundamental shift in the composition of the balance sheet or the timing of revenue and expense recognition. The 2023 ratio of 39.98% indicates a higher reliance on accruals, which typically signals a potential decrease in the immediate cash-backed quality of reported earnings compared to previous years.
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Cash-Flow-Statement-Based Accruals Ratio
First Solar Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income (loss) | 830,777) | (44,166) | 468,693) | 398,355) | (114,933) | |
| Less: Net cash provided by operating activities | 602,260) | 873,369) | 237,559) | 37,120) | 174,201) | |
| Less: Net cash used in investing activities | (472,791) | (1,192,574) | (99,040) | (131,227) | (362,298) | |
| Cash-flow-statement-based aggregate accruals | 701,308) | 275,039) | 330,174) | 492,462) | 73,164) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 16.30% | 7.04% | 7.84% | 13.21% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Advanced Micro Devices Inc. | 1.17% | -15.28% | — | — | — | |
| Analog Devices Inc. | -0.57% | -2.54% | -11.85% | — | — | |
| Applied Materials Inc. | -2.05% | 18.18% | 14.75% | — | — | |
| Broadcom Inc. | -6.71% | -8.94% | -12.34% | — | — | |
| Intel Corp. | 11.35% | 2.75% | — | — | — | |
| KLA Corp. | 3.66% | 18.30% | — | — | — | |
| Lam Research Corp. | -1.71% | 12.43% | — | — | — | |
| Marvell Technology Inc. | -5.79% | 17.57% | — | — | — | |
| Micron Technology Inc. | -2.52% | 11.37% | — | — | — | |
| NVIDIA Corp. | -47.90% | 73.13% | — | — | — | |
| Qualcomm Inc. | -14.57% | 46.91% | 15.61% | — | — | |
| Texas Instruments Inc. | 26.35% | 28.24% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | 0.17% | 7.85% | 21.27% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | 1.37% | 3.25% | 15.65% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 701,308 ÷ [(5,162,400 + 3,442,423) ÷ 2] = 16.30%
2 Click competitor name to see calculations.
The analysis of financial reporting quality from 2020 to 2023 reveals a non-linear trend in aggregate accruals and the corresponding accruals ratio. Between 2020 and 2022, there was a consistent decline in both absolute accruals and the ratio of accruals to net operating assets, suggesting a period of improving earnings quality and a closer alignment between reported earnings and cash flows. However, 2023 marked a significant reversal, characterized by a sharp increase in both metrics.
- Net Operating Assets Trend
- Net operating assets exhibited volatility over the four-year period. After a slight increase between 2020 and 2021, the asset base contracted to 3.44 billion USD in 2022 before expanding significantly to a peak of 5.16 billion USD by December 31, 2023.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals decreased steadily from 492.46 million USD in 2020 to 275.04 million USD in 2022. This trend was sharply interrupted in 2023, when accruals rose to 701.31 million USD, representing the highest absolute value within the observed timeframe.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio followed a U-shaped trajectory, falling from 13.21% in 2020 to a low of 7.04% in 2022, before surging to 16.30% in 2023. The substantial increase in 2023 indicates that a larger proportion of the reported earnings is derived from non-cash accruals relative to the net operating assets, which typically suggests a reduction in the quality of earnings for that period.
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