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
Lam Research Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Jun 28, 2026 | Jun 29, 2025 | Jun 30, 2024 | Jun 25, 2023 | Jun 26, 2022 | Jun 27, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 23,529,743) | 21,345,260) | 18,744,728) | 18,781,643) | 17,195,632) | 15,892,152) | |
| Less: Cash and cash equivalents | 5,579,171) | 6,390,659) | 5,847,856) | 5,337,056) | 3,522,001) | 4,418,263) | |
| Operating assets | 17,950,572) | 14,954,601) | 12,896,872) | 13,444,587) | 13,673,631) | 11,473,889) | |
| Operating Liabilities | |||||||
| Total liabilities | 11,058,822) | 11,483,641) | 10,205,274) | 10,571,471) | 10,917,266) | 9,864,964) | |
| Less: Current portion of long-term debt and finance lease obligations | 4,073) | 754,311) | 504,814) | 8,358) | 7,381) | 11,349) | |
| Less: Long-term debt and finance lease obligations, less current portion | 3,730,490) | 3,730,194) | 4,478,520) | 5,003,183) | 4,998,449) | 4,990,333) | |
| Operating liabilities | 7,324,259) | 6,999,136) | 5,221,940) | 5,559,930) | 5,911,436) | 4,863,282) | |
| Net operating assets1 | 10,626,313) | 7,955,465) | 7,674,932) | 7,884,657) | 7,762,195) | 6,610,607) | |
| Balance-sheet-based aggregate accruals2 | 2,670,848) | 280,533) | (209,725) | 122,462) | 1,151,588) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 28.75% | 3.59% | -2.70% | 1.57% | 16.02% | — | |
| 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% | — | |
| KLA Corp. | 18.67% | 10.15% | -1.32% | 3.95% | 21.25% | — | |
| 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: 2026-06-28), 10-K (reporting date: 2025-06-29), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 17,950,572 – 7,324,259 = 10,626,313
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 10,626,313 – 7,955,465 = 2,670,848
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,670,848 ÷ [(10,626,313 + 7,955,465) ÷ 2] = 28.75%
4 Click competitor name to see calculations.
The analysis of financial reporting quality reveals significant volatility in the balance-sheet-based accruals ratio over the five-year period from June 2022 to June 2026. While the company maintained relatively stable net operating assets for the first four years, a substantial shift occurred in the final year, coinciding with a sharp increase in aggregate accruals.
- Net Operating Assets Trends
- Net operating assets remained relatively constant between 2022 and 2025, fluctuating within a narrow range between 7.67 billion and 7.96 billion US dollars. However, a notable expansion occurred in June 2026, where net operating assets rose to 10.63 billion US dollars, indicating a significant growth in the operational base of the balance sheet.
- Aggregate Accruals Dynamics
- Balance-sheet-based aggregate accruals exhibited extreme variance. Following a high of 1.15 billion US dollars in 2022, accruals declined sharply to 122 million US dollars in 2023 and turned negative to -209.7 million US dollars in 2024. After a modest recovery to 280.5 million US dollars in 2025, accruals spiked to 2.67 billion US dollars in June 2026.
- Accruals Ratio and Earnings Quality
- The balance-sheet-based accruals ratio reflects these fluctuations, starting at 16.02% in 2022 and dropping to a low of -2.70% in 2024. This negative ratio in 2024 suggests a period where cash flow likely exceeded accrual-based earnings, typically indicative of high earnings quality. Conversely, the ratio surged to 28.75% in 2026, the highest point in the analyzed period, signaling a significant divergence between reported earnings and cash flow that may impact the perceived quality of financial reporting for that period.
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Cash-Flow-Statement-Based Accruals Ratio
Lam Research Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Jun 28, 2026 | Jun 29, 2025 | Jun 30, 2024 | Jun 25, 2023 | Jun 26, 2022 | Jun 27, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income | 7,265,396) | 5,358,217) | 3,827,772) | 4,510,931) | 4,605,286) | 3,908,458) | |
| Less: Net cash provided by operating activities | 5,857,657) | 6,173,264) | 4,652,269) | 5,178,938) | 3,099,674) | 3,588,163) | |
| Less: Net cash (used for) provided by investing activities | (922,152) | (708,092) | (370,614) | (534,562) | 612,275) | 73,271) | |
| Cash-flow-statement-based aggregate accruals | 2,329,891) | (106,955) | (453,883) | (133,445) | 893,337) | 247,024) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 25.08% | -1.37% | -5.83% | -1.71% | 12.43% | — | |
| 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% | — | |
| KLA Corp. | 27.99% | 3.15% | 16.82% | 3.66% | 18.30% | — | |
| 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: 2026-06-28), 10-K (reporting date: 2025-06-29), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,329,891 ÷ [(10,626,313 + 7,955,465) ÷ 2] = 25.08%
2 Click competitor name to see calculations.
The analysis of cash-flow-statement-based accruals demonstrates a distinct shift in financial reporting dynamics and asset composition over the five-year period ending June 2026. The relationship between accrual-based earnings and actual cash flow remained negative for three consecutive years before experiencing a sharp reversal in the final period.
- Accruals Ratio Volatility
- The accruals ratio exhibits a non-linear trend, beginning at 12.43% in 2022 and shifting into negative territory from 2023 through 2025. The ratio reached its lowest point in 2024 at -5.83%, indicating that cash flows exceeded accrual-based earnings. This trend reversed abruptly in 2026, with the ratio spiking to 25.08%.
- Net Operating Assets Expansion
- Net operating assets remained relatively stable between 2022 and 2025, fluctuating within a narrow range between 7.67 billion and 7.96 billion US dollars. A significant escalation is observed in 2026, where net operating assets increased to 10.63 billion US dollars, representing a substantial expansion of the operating balance sheet.
- Aggregate Accruals and Earnings Quality
- A period of high earnings quality, characterized by negative aggregate accruals, is evident from 2023 to 2025, with the most pronounced negative value occurring in 2024 at -453.88 million US dollars. However, the final year of the analysis shows a dramatic increase in aggregate accruals to 2.33 billion US dollars. This surge suggests that accrual-based earnings have significantly diverged from cash flow, coinciding with the increase in net operating assets, which may indicate a higher reliance on non-cash earnings or a significant buildup in operating working capital.
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