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
Intuit Inc., balance sheet computation of aggregate accruals
US$ in millions
| Jul 31, 2024 | Jul 31, 2023 | Jul 31, 2022 | Jul 31, 2021 | Jul 31, 2020 | Jul 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 32,132) | 27,780) | 27,734) | 15,516) | 10,931) | 6,283) | |
| Less: Cash and cash equivalents | 3,609) | 2,848) | 2,796) | 2,562) | 6,442) | 2,116) | |
| Less: Investments | 465) | 814) | 485) | 1,308) | 608) | 624) | |
| Operating assets | 28,058) | 24,118) | 24,453) | 11,646) | 3,881) | 3,543) | |
| Operating Liabilities | |||||||
| Total liabilities | 13,696) | 10,511) | 11,293) | 5,647) | 5,825) | 2,534) | |
| Less: Short-term debt | 499) | —) | 499) | —) | 1,338) | 50) | |
| Less: Long-term debt | 5,539) | 6,120) | 6,415) | 2,034) | 2,031) | 386) | |
| Operating liabilities | 7,658) | 4,391) | 4,379) | 3,613) | 2,456) | 2,098) | |
| Net operating assets1 | 20,400) | 19,727) | 20,074) | 8,033) | 1,425) | 1,445) | |
| Balance-sheet-based aggregate accruals2 | 673) | (347) | 12,041) | 6,608) | (20) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 3.35% | -1.74% | 85.68% | 139.73% | -1.39% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Accenture PLC | 35.69% | 16.32% | 21.70% | 27.93% | 3.73% | — | |
| Adobe Inc. | -3.83% | 1.85% | -8.24% | 14.14% | 8.20% | — | |
| Cadence Design Systems Inc. | 39.84% | 11.17% | 26.65% | 4.43% | — | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Fair Isaac Corp. | 6.46% | 12.11% | -3.66% | -6.17% | -0.02% | — | |
| International Business Machines Corp. | 2.79% | 2.42% | 1.55% | -7.39% | — | — | |
| Microsoft Corp. | 52.18% | 22.96% | 42.27% | 40.52% | 14.41% | — | |
| Oracle Corp. | 4.30% | 51.77% | 9.90% | 5.62% | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 89.91% | 137.01% | -124.73% | 85.21% | 69.06% | — | |
| Salesforce Inc. | -2.46% | -2.30% | 57.74% | 10.87% | — | — | |
| ServiceNow Inc. | 22.91% | 61.79% | 12.89% | 34.89% | — | — | |
| Synopsys Inc. | 7.85% | 13.85% | 5.01% | 0.36% | 8.40% | — | |
| Workday Inc. | 28.44% | -11.24% | 55.93% | -15.99% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 26.35% | 18.48% | 29.42% | 16.66% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 21.42% | 8.98% | 18.09% | 19.16% | 200.00% | — | |
Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 28,058 – 7,658 = 20,400
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 20,400 – 19,727 = 673
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 673 ÷ [(20,400 + 19,727) ÷ 2] = 3.35%
4 Click competitor name to see calculations.
- Net operating assets
- The net operating assets exhibit a substantial increase from 1,425 million US dollars in 2020 to a peak of 20,074 million US dollars in 2022. Following this peak, the value slightly declined to 19,727 million US dollars in 2023, then rose again to 20,400 million US dollars in 2024. This trend suggests significant growth in operational asset base over the observed period with some stabilization in the final two years.
- Balance-sheet-based aggregate accruals
- The aggregate accruals display high volatility across the years. Starting at a negative value of -20 million US dollars in 2020, accruals sharply increase to 6,608 million in 2021 and further almost double to 12,041 million in 2022. In 2023, there is a significant reversal, with the figure plunging to -347 million US dollars, followed by a modest increase to 673 million US dollars in 2024. This pattern indicates periods of aggressive accrual adjustments, with a marked correction in 2023 and partial recovery in 2024.
- Balance-sheet-based accruals ratio
- The accruals ratio aligns with the fluctuations observed in aggregate accruals, showing a shift from a small negative value (-1.39%) in 2020 to a pronounced peak of 139.73% in 2021. It then decreases to 85.68% in 2022, followed by a drop to -1.74% in 2023 and a slight positive ratio of 3.35% in 2024. This volatility reflects significant changes in accrual quality relative to net operating assets, with a marked reversal towards more conservative accrual levels in the last two years.
- Overall
- Over the five-year period, there is evident substantial expansion in net operating assets, supporting business growth or investment activities. However, accompanying this growth are volatile and large fluctuations in balance-sheet-based aggregate accruals and their ratio, suggesting inconsistent accrual practices or adjustments. The sharp increase and subsequent correction in accrual-related metrics particularly highlight potential variability in earnings quality or accounting estimates during the period. The recent normalization in 2023 and 2024 may indicate efforts to stabilize accrual practices and improve financial reporting quality.
Cash-Flow-Statement-Based Accruals Ratio
Intuit Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Jul 31, 2024 | Jul 31, 2023 | Jul 31, 2022 | Jul 31, 2021 | Jul 31, 2020 | Jul 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | 2,963) | 2,384) | 2,066) | 2,062) | 1,826) | 1,557) | |
| Less: Net cash provided by operating activities | 4,884) | 5,046) | 3,889) | 3,250) | 2,414) | 2,324) | |
| Less: Net cash used in investing activities | (227) | (922) | (5,421) | (3,965) | (97) | (566) | |
| Cash-flow-statement-based aggregate accruals | (1,694) | (1,740) | 3,598) | 2,777) | (491) | (201) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -8.44% | -8.74% | 25.60% | 58.72% | -34.22% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Accenture PLC | 24.31% | -0.19% | 11.87% | 11.80% | -13.65% | — | |
| Adobe Inc. | -21.90% | -21.73% | -19.93% | 9.21% | -0.48% | — | |
| Cadence Design Systems Inc. | 17.36% | 3.78% | 15.03% | -5.75% | — | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Fair Isaac Corp. | -8.60% | -2.41% | -13.92% | -17.25% | -10.25% | — | |
| International Business Machines Corp. | -3.73% | 0.99% | -7.22% | -1.64% | — | — | |
| Microsoft Corp. | 30.89% | 5.22% | 13.42% | 17.68% | -8.19% | — | |
| Oracle Corp. | -1.01% | 42.79% | -30.58% | 25.81% | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 33.84% | -37.95% | -196.64% | -68.30% | -488.47% | — | |
| Salesforce Inc. | -8.44% | -8.49% | 21.96% | 10.57% | — | — | |
| ServiceNow Inc. | -7.12% | 15.44% | 8.80% | -21.14% | — | — | |
| Synopsys Inc. | -7.64% | 0.20% | -4.64% | -4.88% | 0.92% | — | |
| Workday Inc. | 34.56% | 18.64% | -0.65% | -18.51% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 12.10% | 7.37% | 1.97% | 11.15% | -28.80% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 6.29% | 1.46% | 2.91% | 8.62% | -15.54% | — | |
Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,694 ÷ [(20,400 + 19,727) ÷ 2] = -8.44%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a significant upward trend from 2020 to 2024. Starting at US$1,425 million in 2020, the value rises sharply to US$8,033 million in 2021 and peaks at US$20,074 million in 2022. There is a slight decline to US$19,727 million in 2023, followed by a minor recovery to US$20,400 million in 2024. Overall, the net operating assets have grown substantially over the five-year period, indicating a considerable increase in the company's operating investment or asset base.
- Cash-flow-statement-based Aggregate Accruals
- This metric shows notable volatility throughout the analyzed years. In 2020, aggregate accruals are negative at -US$491 million, shift to a positive US$2,777 million in 2021, and further increase to US$3,598 million in 2022. However, the trend reverses sharply in 2023 and 2024, with negative values of -US$1,740 million and -US$1,694 million respectively. The fluctuations suggest variable earnings management aspects or changes in accrual accounting impacting the cash-flow statement.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio aligns with the patterns seen in aggregate accruals, demonstrating significant fluctuations over the period. It begins at -34.22% in 2020, moves to a high positive 58.72% in 2021, and then declines to 25.6% in 2022. A notable shift to a negative ratio occurs in 2023 (-8.74%) and continues slightly negative in 2024 (-8.44%). This indicates that the proportion of accruals relative to cash flow has been unstable, with a peak in accrual influence around 2021 and a return to negative levels more recently. Such changes may reflect shifts in the quality or timing of earnings recognition.