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
Lumentum Holdings Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Jun 27, 2026 | Jun 28, 2025 | Jun 29, 2024 | Jul 1, 2023 | Jul 2, 2022 | Jul 3, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 7,307,500) | 4,218,700) | 3,931,900) | 4,632,100) | 4,162,200) | 3,551,600) | |
| Less: Cash and cash equivalents | 2,043,500) | 520,700) | 436,700) | 859,000) | 1,290,200) | 774,300) | |
| Less: Short-term investments | 694,900) | 356,400) | 450,300) | 1,154,600) | 1,258,800) | 1,171,700) | |
| Operating assets | 4,569,100) | 3,341,600) | 3,044,900) | 2,618,500) | 1,613,200) | 1,605,600) | |
| Operating Liabilities | |||||||
| Total liabilities | 2,663,600) | 3,084,000) | 2,974,600) | 3,276,300) | 2,287,200) | 1,578,800) | |
| Less: Current portion of long-term debt | 1,596,900) | 10,600) | —) | 311,600) | 409,900) | 390,700) | |
| Less: Long-term debt, excluding current portion | 40,500) | 2,562,600) | 2,503,200) | 2,500,000) | 1,466,100) | 789,800) | |
| Operating liabilities | 1,026,200) | 510,800) | 471,400) | 464,700) | 411,200) | 398,300) | |
| Net operating assets1 | 3,542,900) | 2,830,800) | 2,573,500) | 2,153,800) | 1,202,000) | 1,207,300) | |
| Balance-sheet-based aggregate accruals2 | 712,100) | 257,300) | 419,700) | 951,800) | (5,300) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 22.34% | 9.52% | 17.76% | 56.73% | -0.44% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Apple Inc. | — | 17.98% | -12.64% | -9.04% | -2.12% | 36.09% | |
| Arista Networks Inc. | — | -3.85% | -26.64% | 17.14% | 106.22% | — | |
| Cisco Systems Inc. | — | 0.44% | 75.07% | -12.09% | 5.96% | 20.24% | |
| Dell Technologies Inc. | -11.02% | 18.00% | -9.55% | 12.16% | -89.81% | — | |
| Super Micro Computer Inc. | — | -0.54% | 105.88% | 3.74% | 58.35% | 8.42% | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | 0.00% | 11.87% | 12.04% | -6.32% | -13.26% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 14.20% | 20.88% | 8.81% | 19.09% | — | |
Based on: 10-K (reporting date: 2026-06-27), 10-K (reporting date: 2025-06-28), 10-K (reporting date: 2024-06-29), 10-K (reporting date: 2023-07-01), 10-K (reporting date: 2022-07-02), 10-K (reporting date: 2021-07-03).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 4,569,100 – 1,026,200 = 3,542,900
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 3,542,900 – 2,830,800 = 712,100
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 712,100 ÷ [(3,542,900 + 2,830,800) ÷ 2] = 22.34%
4 Click competitor name to see calculations.
The analysis of balance-sheet-based accruals reveals a period of significant volatility in financial reporting quality alongside consistent expansion of the operating asset base between 2022 and 2026.
- Net Operating Assets Growth
- Net operating assets demonstrated a consistent upward trajectory throughout the analyzed period. Starting at 1.202 billion USD in 2022, the assets grew steadily to reach 3.543 billion USD by 2026. This represents a substantial increase in the operational scale and capital invested in the business.
- Aggregate Accruals Fluctuations
- Balance-sheet-based aggregate accruals shifted from a negative position of -5.3 million USD in 2022 to a peak of 951.8 million USD in 2023. A subsequent contraction occurred over the next two years, with values declining to 419.7 million USD in 2024 and 257.3 million USD in 2025, before rebounding to 712.1 million USD in 2026.
- Accruals Ratio Analysis
- The accruals ratio exhibited extreme volatility, moving from -0.44% in 2022 to a sharp spike of 56.73% in 2023. This peak indicates a significant divergence between reported accounting earnings and cash flow generation during that fiscal year. The ratio subsequently normalized, dropping to 17.76% in 2024 and further to 9.52% in 2025, suggesting an improvement in earnings quality and a closer alignment between accruals and cash. However, the ratio increased again to 22.34% in 2026, signaling a renewed expansion of the gap between net income and cash flows.
In summary, while the company maintained a steady growth pattern in its net operating assets, the quality of financial reporting—as measured by the accruals ratio—was characterized by a major anomaly in 2023 and a recent upward trend in 2026, following a period of relative stabilization.
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Cash-Flow-Statement-Based Accruals Ratio
Lumentum Holdings Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Jun 27, 2026 | Jun 28, 2025 | Jun 29, 2024 | Jul 1, 2023 | Jul 2, 2022 | Jul 3, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income (loss) | (6,935,100) | 25,900) | (546,500) | (131,600) | 198,900) | 397,300) | |
| Less: Net cash provided by operating activities | 751,400) | 126,300) | 24,700) | 179,800) | 459,300) | 738,700) | |
| Less: Net cash (used in) provided by investing activities | (785,500) | (84,100) | (114,300) | (874,000) | (226,300) | 1,000) | |
| Cash-flow-statement-based aggregate accruals | (6,901,000) | (16,300) | (456,900) | 562,600) | (34,100) | (342,400) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -216.55% | -0.60% | -19.33% | 33.53% | -2.83% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Apple Inc. | — | -13.44% | -25.90% | -14.62% | 0.00% | 4.86% | |
| Arista Networks Inc. | — | 163.65% | 82.06% | 36.37% | 52.90% | — | |
| Cisco Systems Inc. | — | -9.79% | 46.78% | -7.65% | -10.18% | 1.64% | |
| Dell Technologies Inc. | -17.24% | 12.75% | -15.65% | 11.23% | -20.97% | — | |
| Super Micro Computer Inc. | — | -7.24% | 98.99% | 0.89% | 56.84% | 5.08% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | 0.00% | -8.09% | -3.01% | -9.60% | -4.09% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 5.89% | 5.99% | 1.37% | 3.25% | — | |
Based on: 10-K (reporting date: 2026-06-27), 10-K (reporting date: 2025-06-28), 10-K (reporting date: 2024-06-29), 10-K (reporting date: 2023-07-01), 10-K (reporting date: 2022-07-02), 10-K (reporting date: 2021-07-03).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -6,901,000 ÷ [(3,542,900 + 2,830,800) ÷ 2] = -216.55%
2 Click competitor name to see calculations.
Net operating assets have exhibited a consistent and steady increase over the analyzed period, growing from $1.202 billion in July 2022 to $3.543 billion by June 2026. This upward trajectory indicates a persistent expansion of the asset base supporting the entity's operations.
- Aggregate Accruals Trend
- Cash-flow-statement-based aggregate accruals demonstrate extreme volatility. Following a relatively stable start in 2022, a significant spike to $562.6 million was recorded in July 2023. Subsequent years showed a return to negative territory, culminating in a sharp decline to negative $6.901 billion by June 2026, suggesting a substantial divergence between cash flows and accounting earnings in the final period.
- Accruals Ratio Interpretation
- The cash-flow-statement-based accruals ratio reflects the aforementioned volatility, shifting from -2.83% in 2022 to a peak of 33.53% in 2023. After fluctuating between -19.33% and -0.60% in the following two years, the ratio experienced a severe collapse to -216.55% in June 2026. This extreme negative percentage indicates that negative accruals have far exceeded the total value of net operating assets, typically signaling significant non-cash write-downs or a severe disconnect between reported accrual earnings and actual cash flow generation.
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