Stock Analysis on Net
Stock Analysis on Net

KLA Corp. (NASDAQ:KLAC)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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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Balance-Sheet-Based Accruals Ratio

KLA Corp., balance sheet computation of aggregate accruals

US$ in thousands

Microsoft Excel
Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019
Operating Assets
Total assets
Less: Cash and cash equivalents
Less: Marketable securities
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term debt
Less: Current portion of long-term debt
Less: Long-term debt, 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
Advanced Micro Devices Inc.
Analog Devices Inc.
Applied Materials Inc.
Broadcom Inc.
Intel 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: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).

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 financial quality measures over the five-year period reveals notable fluctuations and trends in net operating assets and accruals for the entity.

Net operating assets
This metric shows a consistent upward trend from 2020 through 2023, increasing from approximately 4.17 billion USD to 5.57 billion USD, representing a steady growth in the company's net operational investment base. However, in 2024, there is a slight decrease to about 5.49 billion USD, indicating a minor contraction or revaluation of these assets after years of expansion.
Balance-sheet-based aggregate accruals
The aggregate accruals demonstrate significant volatility throughout the period. In 2020, aggregate accruals were negative at approximately -191 million USD, moving to a positive 154 million USD in 2021, followed by a substantial jump to over 1 billion USD in 2022. This peak is followed by a sharp decline to around 216 million USD in 2023 and then a return to negative territory, approximately -73 million USD, in 2024. This pattern suggests varying earnings management or timing differences in revenue and expense recognition across the years.
Balance-sheet-based accruals ratio
The accruals ratio mirrors the behavior of aggregate accruals with considerable fluctuations. Starting at -4.49% in 2020, it rises to 3.62% in 2021, then sharply increases to a peak of 21.25% in 2022. Subsequently, it declines to 3.95% in 2023 before dropping below zero to -1.32% in 2024. The large spike in 2022 indicates a year with potentially significant accruals impact relative to net operating assets, raising considerations about earnings quality during that period. The return to negative values in 2024 might suggest reversal of previous accruals or more conservative recognition in that year.

Overall, the data indicates growth in net operating assets with pronounced variability in accruals measures, reflecting dynamic changes in accounting estimates or operational timing effects over the five years. The substantial peak in accruals in 2022 warrants close attention due to its potential implications on the reliability of the reported earnings and financial health in that year.

Cash-Flow-Statement-Based Accruals Ratio

KLA Corp., cash flow statement computation of aggregate accruals

US$ in thousands

Microsoft Excel
Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019
Net income attributable to KLA
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
Advanced Micro Devices Inc.
Analog Devices Inc.
Applied Materials Inc.
Broadcom Inc.
Intel 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: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).

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
The net operating assets exhibit a generally increasing trend over the five-year period from June 30, 2020, to June 30, 2024. Starting at approximately 4.17 billion USD in 2020, the figure rose steadily to about 5.56 billion USD by 2023, followed by a slight decrease to roughly 5.49 billion USD in 2024. This indicates an overall expansion in operating assets, with a marginal reduction in the last year observed.
Cash-Flow-Statement-Based Aggregate Accruals
The aggregate accruals show volatile behavior throughout the analyzed period. In 2020, the value was negative at approximately -303 million USD, which shifted dramatically to a positive 394 million USD in 2021. The upward trajectory continued sharply in 2022, reaching around 886 million USD. However, a significant drop to about 200 million USD occurred in 2023, followed by an increase again to approximately 930 million USD in 2024. This pattern reflects notable fluctuations in accrual components derived from cash flow statements.
Cash-Flow-Statement-Based Accruals Ratio
The accruals ratio mirrors the variability seen in the aggregate accruals. Initially negative at -7.11% in 2020, it turned positive to 9.27% in 2021 and further rose sharply to 18.3% in 2022. A substantial decline to 3.66% was recorded in 2023, with a rebound to 16.82% in 2024. Such fluctuations suggest fluctuations in the proportion of accruals relative to net operating assets or related benchmarks, highlighting intermittently higher or lower levels of accrual-based adjustments within the firm's financial reporting.