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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- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Honeywell International 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 investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Commercial paper and other short-term borrowings | ||||||
| Less: 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 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 significant fluctuations over the observed period. Net operating assets demonstrate a generally increasing trend, while aggregate accruals and the resulting accruals ratio display considerable volatility.
- Net Operating Assets
- Net operating assets increased from US$26,786 million in 2022 to US$28,789 million in 2023, representing a growth of approximately 7.5%. A substantial increase is then observed, reaching US$39,307 million in 2024. However, this growth plateaus with a slight decrease to US$36,680 million in 2025.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals were negative in 2022, at -US$539 million. A substantial positive shift occurred in 2023, with accruals reaching US$2,003 million. This positive trend continued into 2024, with accruals increasing significantly to US$10,518 million. In 2025, accruals turned negative again, amounting to -US$2,627 million.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It began at -1.99% in 2022, indicating a reduction in net operating assets not explained by cash flows. The ratio increased substantially to 7.21% in 2023 and further to 30.89% in 2024, suggesting a growing reliance on accruals to support reported earnings. A sharp reversal is evident in 2025, with the ratio declining to -6.91%, indicating a significant decrease in net operating assets not explained by cash flows.
The large fluctuations in the accruals ratio warrant further investigation. The substantial increase in 2024, followed by a significant decrease in 2025, could indicate aggressive accounting practices or changes in the company’s operating cycle. The negative accruals ratio in both 2022 and 2025 suggests periods where cash flows were greater than reported earnings, or conversely, that reported earnings were lower than cash flows. The volatility in this ratio may signal potential concerns regarding the quality of reported earnings and requires deeper scrutiny of the underlying components of accruals.
Cash-Flow-Statement-Based Accruals Ratio
Honeywell International Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Honeywell | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used for investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 information presents a review of net operating assets and related accruals over a four-year period. A significant fluctuation is observed in cash-flow-statement-based aggregate accruals and, consequently, the accruals ratio.
- Net Operating Assets
- Net operating assets demonstrate a generally increasing trend, rising from 26,786 US$ millions in 2022 to 28,789 US$ millions in 2023. This growth accelerates substantially in 2024, reaching 39,307 US$ millions, before experiencing a moderate decrease to 36,680 US$ millions in 2025. The overall trend indicates asset expansion, though with some volatility in the most recent year.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals exhibit considerable variability. A negative value of -215 US$ millions is recorded in 2022, followed by a substantial positive shift to 1,611 US$ millions in 2023. Accruals continue to increase dramatically in 2024, reaching 9,765 US$ millions, before declining significantly to 1,096 US$ millions in 2025. This pattern suggests a dynamic relationship between reported earnings and underlying cash flows.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the trends in aggregate accruals. It begins at -0.79% in 2022, indicating that net income was not well supported by cash flows. The ratio increases to 5.80% in 2023, suggesting improved alignment between earnings and cash generation. A substantial peak is observed in 2024, with the ratio reaching 28.68%, which is a notably high value. The ratio then decreases to 2.88% in 2025. The large increase in 2024, followed by a decrease in 2025, warrants further investigation to understand the underlying drivers of accrual activity and potential impacts on earnings quality. The initial negative value in 2022 also suggests potential areas for scrutiny.
The substantial fluctuations in both accruals and the accruals ratio suggest a need for detailed examination of the components driving these changes. The significant increase in the accruals ratio in 2024, in particular, should be investigated to determine if it is sustainable and reflective of genuine economic activity or indicative of potential earnings management.