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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Intel Corp. pages available for free this week:
- Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) 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
Intel Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt | ||||||
| Less: Long-term debt | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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 analysis of the annual financial reporting quality measures reveals distinct trends and variations over the four-year period examined. The net operating assets exhibit a steady increase from 105,079 million US dollars in 2021 to a peak of 134,197 million US dollars in 2023, followed by a slight decline to 132,981 million US dollars in 2024. This progression indicates a general expansion in the company's net operating assets over the years, with a minor contraction towards the end of the period.
In contrast, the balance-sheet-based aggregate accruals present a different pattern. Initially, these accruals increase marginally from 11,535 million US dollars in 2021 to 11,920 million US dollars in 2022, then experience a substantial rise to 17,198 million US dollars in 2023. However, in 2024, there is a pronounced reversal, with aggregate accruals turning negative to -1,216 million US dollars. This shift suggests a significant change in the company's accrual accounting or operational activities during the last year, potentially indicative of adjustments or corrections in reported earnings components.
The balance-sheet-based accruals ratio, expressed as a percentage, mirrors the behavior of aggregate accruals relative to net operating assets. It decreases slightly from 11.61% in 2021 to 10.73% in 2022, then climbs sharply to 13.69% in 2023, before plummeting to a negative ratio of -0.91% in 2024. This negative ratio in the latest period is particularly notable as it diverges markedly from prior positive values, signifying that accrued liabilities or adjustments may have outweighed accrued assets, affecting the quality and sustainability of reported earnings.
Overall, the data indicates an expansion in net operating assets alongside increasingly volatile accrual measures, culminating in a significant decline and negative accrual ratios in the latest year. This pattern warrants further investigation into the underlying causes of the 2024 negative accruals ratio to assess its implications for earnings quality and financial statement reliability.
Cash-Flow-Statement-Based Accruals Ratio
Intel Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | Dec 26, 2020 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Intel | ||||||
| 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 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).
1 2024 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
-
Net operating assets demonstrated a consistent upward trend from 2021 to 2023, increasing from approximately $105.1 billion in 2021 to about $134.2 billion in 2023. However, in 2024, there was a slight decrease, with net operating assets amounting to approximately $133.0 billion. This suggests overall growth in operating assets over the period with a minor contraction in the latest year.
- Cash-flow-statement-based Aggregate Accruals
-
The aggregate accruals exhibited significant fluctuations over the four years. In 2021, the accruals were notably high at $15.0 billion, which sharply declined to $3.1 billion in 2022. An increase occurred in 2023, with accruals rising again to $14.3 billion. In 2024, the figure turned negative, reporting approximately negative $8.8 billion. These variations indicate considerable volatility in accruals, with a notable shift from positive to negative values in the latest year.
- Cash-flow-statement-based Accruals Ratio
-
The accruals ratio mirrored the pattern of aggregate accruals, with values decreasing substantially from 15.15% in 2021 to 2.75% in 2022, before increasing to 11.35% in 2023. In 2024, the ratio turned negative at -6.58%. The downward turn into negative territory suggests a reversal in the relationship between accruals and cash flows, potentially indicating changes in earnings quality or accounting practices that merit closer examination.
- Summary
-
The data reveals that while net operating assets have generally increased over the period, slightly retracting in the final year, the cash-flow-statement-based aggregate accruals and their corresponding ratio have experienced marked volatility. This includes a transition from large positive accruals to negative values, and a similar shift in the accruals ratio. Such patterns may reflect fluctuations in the company's earnings quality and warrant further analysis to understand underlying drivers and impacts on financial health.