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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Gilead Sciences Inc. pages available for free this week:
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
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Balance-Sheet-Based Accruals Ratio
Gilead Sciences Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term marketable debt securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of long-term debt, net | ||||||
| Less: Long-term debt, net, excluding current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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.
The balance-sheet-based accruals ratio exhibits considerable fluctuation over the observed period. Net operating assets demonstrate a modest initial increase followed by a decline and subsequent partial recovery. A detailed examination of the accruals ratio and its components reveals noteworthy patterns.
- Net Operating Assets
- Net operating assets increased from US$40,054 million in 2022 to US$40,472 million in 2023, representing a slight growth. A subsequent decrease to US$35,966 million was recorded in 2024, followed by a recovery to US$39,922 million in 2025. This suggests potential volatility in operational asset management or investment strategies.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were negative in 2022, at -US$1,185 million, indicating a reduction in accrued revenues or an increase in accrued expenses relative to cash flows. Accruals turned positive in 2023, reaching US$418 million, suggesting a reversal of this trend. A substantial negative value of -US$4,506 million was observed in 2024, followed by a positive value of US$3,956 million in 2025. These swings imply significant changes in the timing of cash receipts and disbursements relative to reported earnings.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio was -2.92% in 2022, reflecting the negative aggregate accruals. The ratio became positive in 2023, at 1.04%, indicating a smaller positive accrual effect. A significant decline to -11.79% occurred in 2024, signaling a substantial negative accrual effect relative to net operating assets. The ratio rebounded strongly to 10.43% in 2025. The considerable volatility in this ratio warrants further investigation into the underlying drivers of accruals, as large fluctuations can sometimes indicate potential earnings management or aggressive accounting practices. The shift from negative to positive and back to negative, then positive again, suggests cyclical or event-driven changes in accrual patterns.
The observed patterns in aggregate accruals and the resulting accruals ratio suggest a dynamic relationship between reported earnings and underlying cash flows. The large fluctuations, particularly in 2024 and 2025, merit further scrutiny to determine the sustainability of these trends and their potential impact on the quality of reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
Gilead Sciences Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Gilead | ||||||
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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 2025 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.
The analysis reveals significant fluctuations in cash-flow-statement-based accruals and the corresponding accruals ratio over the four-year period. Net operating assets exhibited a modest increase initially, followed by a decrease and then a partial recovery.
- Net Operating Assets
- Net operating assets increased from US$40,054 million in 2022 to US$40,472 million in 2023, representing a slight growth. A subsequent decrease was observed in 2024, falling to US$35,966 million. The final year, 2025, showed a recovery to US$39,922 million, though remaining below the 2023 level.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals were negative in 2022 and 2023, at -US$2,014 million and -US$76 million respectively. A substantial negative value was recorded in 2024, reaching -US$6,899 million. However, a significant shift occurred in 2025, with accruals turning positive at US$3,284 million.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It was -4.95% in 2022, decreasing to -0.19% in 2023. A considerable decline was noted in 2024, reaching -18.05%. The ratio became positive in 2025, registering 8.65%. This represents a substantial swing from the prior year’s negative value.
The large negative accruals ratio in 2024, followed by a positive ratio in 2025, warrants further investigation. These fluctuations suggest potential changes in the company’s accounting practices, revenue recognition policies, or working capital management. The shift from negative to positive accruals in the final year could indicate improved cash generation from operations or a reduction in non-cash expenses. The initial increase in net operating assets followed by a decrease and subsequent partial recovery also merits attention.