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.
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Fiserv Inc. pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Fiserv 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 | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term and current maturities of long-term debt | ||||||
| Less: Long-term debt, excluding current maturities | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Software & Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
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
= – =
2 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2021 – Net operating assets2020
= – =
3 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =
4 Click competitor name to see calculations.
- Net Operating Assets
- Over the four-year period, the net operating assets experienced a substantial increase from 7,837 million US dollars in 2018 to a peak of 55,863 million in 2019. Thereafter, a slight decline was observed, with net operating assets decreasing to 53,107 million in 2020 and further to 52,352 million in 2021. This trend indicates a significant expansion in operating assets in the early years, followed by relative stability with modest reductions in the latter years.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals display pronounced volatility across the years. Starting at 531 million in 2018, there was a dramatic increase to 48,026 million in 2019, followed by a substantial reversal to negative accruals of -2,756 million in 2020 and -755 million in 2021. This pattern suggests substantial fluctuations in accrual accounting components, indicating potential shifts in earnings quality or accounting policy adjustments during the period.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, similarly shows extreme variability. It rose sharply from 7.01% in 2018 to an unusually high 150.79% in 2019, then turned negative to -5.06% in 2020 and -1.43% in 2021. The high positive ratio in 2019 implies an abnormal level of accruals relative to the asset base, while the subsequent negative ratios reflect reversals or reductions in accruals. This inconsistency may highlight issues related to earnings management or non-recurring financial events affecting accrual calculations.
Cash-Flow-Statement-Based Accruals Ratio
Fiserv 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 attributable to Fiserv, Inc. | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Software & Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
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] =
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited a substantial increase from 7,837 million US dollars at the end of 2018 to 55,863 million US dollars at the end of 2019. Subsequently, there was a slight decline, with values of 53,107 million and 52,352 million US dollars at the end of 2020 and 2021, respectively. Despite the small downward adjustments in the last two years, the net operating assets remained significantly elevated compared to the 2018 level, indicating considerable growth in operational assets over the period.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals showed a marked increase in 2019, reaching 14,700 million US dollars, a substantial jump from 298 million US dollars in 2018. Following this peak, the figure turned negative in 2020 and 2021, reported respectively as -2,848 million and -1,070 million US dollars. The shift from positive to negative accruals indicates a reversal in accrual accounting and cash flow relationship, pointing to more conservative or adjusted financial reporting practices or changes in cash flow dynamics during those years.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio reflected a similar pattern to the aggregate accruals. It surged sharply from 3.94% in 2018 to 46.15% in 2019, indicating a relatively high level of accruals compared to cash flows for that year. Thereafter, the ratio decreased substantially, becoming negative at -5.23% in 2020 and -2.03% in 2021. This trend suggests that the company's accrual component relative to cash flows peaked in 2019 before moving into a negative proportion, implying a decline in accruals or an increase in cash flows relative to accruals in the final two years.