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
KLA Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 17,951,535) | 16,067,926) | 15,433,566) | 14,072,357) | 12,597,088) | 10,271,124) | |
| Less: Cash and cash equivalents | 1,649,842) | 2,078,908) | 1,977,129) | 1,927,865) | 1,584,908) | 1,434,610) | |
| Less: Marketable securities | 3,252,566) | 2,415,715) | 2,526,866) | 1,315,294) | 1,123,100) | 1,059,912) | |
| Operating assets | 13,049,127) | 11,573,303) | 10,929,571) | 10,829,198) | 9,889,080) | 7,776,602) | |
| Operating Liabilities | |||||||
| Total liabilities | 11,601,715) | 11,375,473) | 12,065,238) | 11,152,604) | 11,197,998) | 6,895,482) | |
| Less: Short-term debt | —) | —) | —) | —) | —) | 20,000) | |
| Less: Current portion of long-term debt | —) | —) | 749,936) | —) | —) | —) | |
| Less: Long-term debt, excluding current portion | 5,887,415) | 5,884,257) | 5,880,199) | 5,890,736) | 6,660,718) | 3,422,767) | |
| Operating liabilities | 5,714,300) | 5,491,216) | 5,435,103) | 5,261,868) | 4,537,280) | 3,452,715) | |
| Net operating assets1 | 7,334,827) | 6,082,087) | 5,494,468) | 5,567,330) | 5,351,800) | 4,323,887) | |
| Balance-sheet-based aggregate accruals2 | 1,252,740) | 587,619) | (72,862) | 215,530) | 1,027,913) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 18.67% | 10.15% | -1.32% | 3.95% | 21.25% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Advanced Micro Devices Inc. | — | 2.75% | 2.94% | 2.36% | 169.75% | — | |
| Analog Devices Inc. | — | -4.14% | -2.83% | 0.03% | -2.94% | 90.70% | |
| Applied Materials Inc. | — | 15.26% | 4.18% | 0.48% | 20.73% | 17.33% | |
| Broadcom Inc. | — | 3.40% | 87.89% | -1.58% | -5.37% | -8.72% | |
| Intel Corp. | — | 1.90% | -0.91% | 13.69% | 10.73% | — | |
| Lam Research Corp. | 28.75% | 3.59% | -2.70% | 1.57% | 16.02% | — | |
| Micron Technology Inc. | — | 14.72% | 5.22% | 0.78% | 12.07% | 11.51% | |
| NVIDIA Corp. | 79.34% | 50.16% | 29.90% | 18.88% | 28.31% | — | |
| Qualcomm Inc. | — | -15.91% | 7.33% | -5.53% | 68.49% | 22.56% | |
| Texas Instruments Inc. | — | 10.43% | 15.89% | 31.37% | 22.75% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Semiconductors & Semiconductor Equipment | 0.00% | 6.56% | 19.65% | 6.33% | 24.66% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 14.50% | 21.34% | 9.00% | 18.16% | — | |
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 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).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 13,049,127 – 5,714,300 = 7,334,827
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 7,334,827 – 6,082,087 = 1,252,740
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,252,740 ÷ [(7,334,827 + 6,082,087) ÷ 2] = 18.67%
4 Click competitor name to see calculations.
The analysis of financial reporting quality through balance-sheet-based accruals reveals a period of significant volatility between June 30, 2022, and June 30, 2026. The metrics indicate a cyclical pattern where high levels of accruals were followed by a contraction and a subsequent sharp increase.
- Net Operating Assets Trend
- Net operating assets exhibited a general upward trajectory over the five-year period. Starting at US$ 5.35 billion in 2022, assets experienced a slight contraction to US$ 5.49 billion by June 30, 2024, before expanding rapidly to US$ 7.33 billion by June 30, 2026. This growth suggests an expansion of the operational base, with the pace of growth accelerating significantly in the final two years of the observed period.
- Aggregate Accruals Performance
- Balance-sheet-based aggregate accruals demonstrated substantial fluctuations. A high initial value of US$ 1.03 billion in 2022 decreased sharply to US$ 215.5 million in 2023 and reached a negative value of US$ -72.9 million in 2024. Following this trough, accruals surged to US$ 587.6 million in 2025 and reached US$ 1.25 billion by 2026. This trajectory indicates a reversal from a period where cash flows likely exceeded reported earnings to a period where reported earnings were again significantly higher than cash flows.
- Accruals Ratio and Reporting Quality
- The balance-sheet-based accruals ratio mirrors the volatility of the aggregate accruals. The ratio declined from 21.25% in 2022 to -1.32% in 2024, signifying a transition to an environment where cash flows were more aligned with or exceeded reported earnings. However, the ratio climbed steadily thereafter, reaching 10.15% in 2025 and 18.67% in 2026. The return to a high positive ratio indicates that non-cash earnings components once again represent a larger portion of the asset base, which typically suggests a reduction in the immediate quality of reported earnings compared to the 2024 period.
AI Ask an analyst for more
Cash-Flow-Statement-Based Accruals Ratio
KLA Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income attributable to KLA | 4,830,771) | 4,061,643) | 2,761,896) | 3,387,277) | 3,321,807) | 2,078,292) | |
| Less: Net cash provided by operating activities | 4,143,079) | 4,081,903) | 3,308,575) | 3,669,805) | 3,312,702) | 2,185,026) | |
| Less: Net cash used in investing activities | (1,190,095) | (202,481) | (1,476,985) | (482,571) | (876,458) | (500,404) | |
| Cash-flow-statement-based aggregate accruals | 1,877,787) | 182,221) | 930,306) | 200,043) | 885,563) | 393,670) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 27.99% | 3.15% | 16.82% | 3.66% | 18.30% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Advanced Micro Devices Inc. | — | 8.55% | -0.56% | 1.17% | -15.28% | — | |
| Analog Devices Inc. | — | -3.09% | -2.71% | -0.57% | -2.54% | -11.85% | |
| Applied Materials Inc. | — | 10.66% | 5.35% | -2.05% | 18.18% | 14.75% | |
| Broadcom Inc. | — | -2.99% | 10.29% | -6.71% | -8.94% | -12.34% | |
| Intel Corp. | — | 3.62% | -6.58% | 11.35% | 2.75% | — | |
| Lam Research Corp. | 25.08% | -1.37% | -5.83% | -1.71% | 12.43% | — | |
| Micron Technology Inc. | — | 9.37% | 1.18% | -2.52% | 11.37% | 10.01% | |
| NVIDIA Corp. | 94.16% | 81.96% | 52.67% | -47.90% | 73.13% | — | |
| Qualcomm Inc. | — | -30.00% | 5.53% | -14.57% | 46.91% | 15.61% | |
| Texas Instruments Inc. | — | -2.95% | 7.93% | 26.35% | 28.24% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Semiconductors & Semiconductor Equipment | 0.00% | 6.13% | 3.46% | 0.45% | 7.45% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 6.07% | 6.20% | 1.46% | 2.99% | — | |
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 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).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,877,787 ÷ [(7,334,827 + 6,082,087) ÷ 2] = 27.99%
2 Click competitor name to see calculations.
The analysis of financial reporting quality reveals a general expansion of the asset base accompanied by significant volatility in accrual levels. Net operating assets grew from 5,351,800 thousand US dollars in June 2022 to 7,334,827 thousand US dollars by June 2026, maintaining a consistent upward trajectory despite a marginal contraction observed in 2024.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals exhibit a highly erratic pattern over the five-year period. The values fluctuated from 885,563 thousand US dollars in 2022 to a low of 182,221 thousand US dollars in 2025, before surging to a period peak of 1,877,787 thousand US dollars in 2026. This instability indicates substantial shifts in the timing differences between reported accounting earnings and actual cash flows.
- Accruals Ratio Trends
- The accruals ratio mirrors the volatility of the aggregate accruals, characterized by alternating peaks and troughs. The ratio declined from 18.30% in 2022 to 3.66% in 2023, rose to 16.82% in 2024, fell again to 3.15% in 2025, and reached a high of 27.99% in 2026. The sharp escalation in the final year suggests a widening divergence between cash flow and accrual-based reporting relative to the size of net operating assets.
AI Ask an analyst for more