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
Keurig Dr Pepper Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|
| Operating Assets | |||||
| Total assets | 50,598) | 49,779) | 49,518) | 48,918) | |
| Less: Cash and cash equivalents | 567) | 240) | 75) | 83) | |
| Less: Restricted cash and restricted cash equivalents | 1) | 15) | 26) | 46) | |
| Operating assets | 50,030) | 49,524) | 49,417) | 48,789) | |
| Operating Liabilities | |||||
| Total liabilities | 25,626) | 25,949) | 26,261) | 26,385) | |
| Less: Short-term borrowings and current portion of long-term obligations | 304) | 2,345) | 1,593) | 1,458) | |
| Less: Current finance lease liability | 79) | 44) | 41) | 26) | |
| Less: Long-term obligations, excluding current portion | 11,578) | 11,143) | 12,827) | 14,201) | |
| Less: Non-current finance lease liability | 621) | 298) | 269) | 305) | |
| Operating liabilities | 13,044) | 12,119) | 11,531) | 10,395) | |
| Net operating assets1 | 36,986) | 37,405) | 37,886) | 38,394) | |
| Balance-sheet-based aggregate accruals2 | (419) | (481) | (508) | —) | |
| Financial Ratio | |||||
| Balance-sheet-based accruals ratio3 | -1.13% | -1.28% | -1.33% | — | |
| Benchmarks | |||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||
| Coca-Cola Co. | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||
| Food, Beverage & Tobacco | 200.00% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||
| Consumer Staples | 200.00% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2021 Calculation
Net operating assets = Operating assets – Operating liabilities
= 50,030 – 13,044 = 36,986
2 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2021 – Net operating assets2020
= 36,986 – 37,405 = -419
3 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -419 ÷ [(36,986 + 37,405) ÷ 2] = -1.13%
4 Click competitor name to see calculations.
The financial data for the period ending December 31, 2021, reveals a consistent pattern of negative balance-sheet-based aggregate accruals. This trend indicates that cash flows from operations have consistently exceeded the reported accrual-based earnings, which is typically associated with high earnings quality and conservative accounting practices.
- Net Operating Assets
- A marginal and steady decline in net operating assets is observed over the three-year period. The value decreased from 37,886 million USD in 2019 to 37,405 million USD in 2020, and further to 36,986 million USD by 2021. This represents a total reduction of approximately 2.37% over the analyzed timeframe.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals remained negative throughout the period, although the magnitude of these negative values decreased annually. The figures moved from -508 million USD in 2019 to -481 million USD in 2020, and ended at -419 million USD in 2021. The reduction in the negative balance suggests a narrowing gap between cash flow and accrual earnings.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the trend seen in aggregate accruals, shifting from -1.33% in 2019 to -1.28% in 2020, and reaching -1.13% in 2021. While the ratio remains negative, the upward trend toward zero indicates a slight change in the relationship between the company's operating assets and its accumulated accruals, though the overall levels remain low and stable.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Cash-Flow-Statement-Based Accruals Ratio
Keurig Dr Pepper Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|
| Net income attributable to KDP | 2,146) | 1,325) | 1,254) | 586) | |
| Less: Net cash provided by operating activities | 2,874) | 2,456) | 2,474) | 1,613) | |
| Less: Net cash (used in) provided by investing activities | 210) | (316) | (150) | (19,131) | |
| Cash-flow-statement-based aggregate accruals | (938) | (815) | (1,070) | 18,104) | |
| Financial Ratio | |||||
| Cash-flow-statement-based accruals ratio1 | -2.52% | -2.16% | -2.81% | — | |
| Benchmarks | |||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||
| Coca-Cola Co. | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||
| Food, Beverage & Tobacco | -1.37% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||
| Consumer Staples | -9.79% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2021 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -938 ÷ [(36,986 + 37,405) ÷ 2] = -2.52%
2 Click competitor name to see calculations.
The financial reporting quality for the period ending December 31, 2021, is characterized by consistently negative aggregate accruals, indicating that cash flows from operations have exceeded reported accounting earnings over the three-year observation window.
- Net Operating Assets
- A slight downward trend is observed in net operating assets, which declined from US$ 37,886 million in 2019 to US$ 36,986 million in 2021, reflecting a gradual reduction in the asset base supporting operations.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals remained negative throughout the period, with values of -US$ 1,070 million in 2019, -US$ 815 million in 2020, and -US$ 938 million in 2021. The persistence of negative accruals suggests high earnings quality, as accounting profits are consistently lower than the actual cash generated by the business.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio demonstrates stability, fluctuating within a narrow negative range from -2.81% in 2019 to -2.16% in 2020, and -2.52% in 2021. This consistent negative orientation implies a conservative accounting approach and a low probability of earnings manipulation or aggressive revenue recognition.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?