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
Meta Platforms Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 366,021) | 276,054) | 229,623) | 185,727) | 165,987) | |
| Less: Cash and cash equivalents | 35,873) | 43,889) | 41,862) | 14,681) | 16,601) | |
| Less: Marketable securities | 45,719) | 33,926) | 23,541) | 26,057) | 31,397) | |
| Operating assets | 284,429) | 198,239) | 164,220) | 144,989) | 117,989) | |
| Operating Liabilities | ||||||
| Total liabilities | 148,778) | 93,417) | 76,455) | 60,014) | 41,108) | |
| Less: Finance lease liabilities, current | 308) | 76) | 90) | 129) | 75) | |
| Less: Long-term debt | 58,744) | 28,826) | 18,385) | 9,923) | —) | |
| Less: Finance lease liabilities, non-current | 876) | 633) | 600) | 558) | 506) | |
| Operating liabilities | 88,850) | 63,882) | 57,380) | 49,404) | 40,527) | |
| Net operating assets1 | 195,579) | 134,357) | 106,840) | 95,585) | 77,462) | |
| Balance-sheet-based aggregate accruals2 | 61,222) | 27,517) | 11,255) | 18,123) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 37.11% | 22.82% | 11.12% | 20.95% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Alphabet Inc. | 32.21% | 26.92% | 17.24% | 21.43% | — | |
| Comcast Corp. | 4.82% | 2.10% | 1.29% | -6.76% | — | |
| Netflix Inc. | 4.06% | 9.36% | -3.78% | 14.21% | — | |
| Trade Desk Inc. | 13.91% | 26.91% | 15.86% | 16.20% | — | |
| Walt Disney Co. | 3.76% | 0.01% | 0.08% | 3.09% | 1.73% | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | 20.86% | 13.42% | 6.82% | 7.78% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | 12.92% | 6.15% | 4.26% | -3.76% | — | |
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 284,429 – 88,850 = 195,579
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 195,579 – 134,357 = 61,222
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 61,222 ÷ [(195,579 + 134,357) ÷ 2] = 37.11%
4 Click competitor name to see calculations.
The balance-sheet-based accruals ratio exhibits a fluctuating pattern over the observed period. Initially, a decrease is noted, followed by increases in subsequent years. Net operating assets demonstrate consistent growth throughout the period, while aggregate accruals show a more volatile trend.
- Net Operating Assets
- Net operating assets increased steadily from US$95,585 million in 2022 to US$195,579 million in 2025. This represents a substantial cumulative increase, indicating overall business expansion and asset accumulation.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals decreased from US$18,123 million in 2022 to US$11,255 million in 2023. However, they subsequently increased to US$27,517 million in 2024 and further to US$61,222 million in 2025. This suggests a growing reliance on accruals to manage reported earnings as net operating assets expand.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio decreased from 20.95% in 2022 to 11.12% in 2023, coinciding with the decrease in aggregate accruals. The ratio then increased to 22.82% in 2024 and significantly to 37.11% in 2025. This upward trend in the accruals ratio warrants further investigation, as a consistently high or increasing ratio may indicate potential concerns regarding the quality of reported earnings. The substantial increase in 2025 is particularly noteworthy.
The divergence between the growth in net operating assets and the increasing accruals ratio suggests that a larger proportion of reported earnings are being driven by accounting accruals rather than by core operating cash flows in later years. This trend could be indicative of increased earnings management or a shift in the company’s business model.
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Cash-Flow-Statement-Based Accruals Ratio
Meta Platforms Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | 60,458) | 62,360) | 39,098) | 23,200) | 39,370) | |
| Less: Net cash provided by operating activities | 115,800) | 91,328) | 71,113) | 50,475) | 57,683) | |
| Less: Net cash used in investing activities | (102,003) | (47,150) | (24,495) | (28,970) | (7,570) | |
| Cash-flow-statement-based aggregate accruals | 46,661) | 18,182) | (7,520) | 1,695) | (10,743) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 28.28% | 15.08% | -7.43% | 1.96% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Alphabet Inc. | 30.01% | 9.42% | -0.52% | -7.90% | — | |
| Comcast Corp. | 1.38% | 2.38% | -3.44% | -3.88% | — | |
| Netflix Inc. | -0.67% | 12.03% | -8.44% | 16.73% | — | |
| Trade Desk Inc. | -23.25% | -20.85% | -42.93% | -30.87% | — | |
| Walt Disney Co. | 1.58% | -1.46% | -1.97% | 1.50% | -0.29% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | 16.91% | 6.38% | -3.21% | -1.72% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | 9.45% | 2.36% | -2.49% | -1.32% | — | |
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 46,661 ÷ [(195,579 + 134,357) ÷ 2] = 28.28%
2 Click competitor name to see calculations.
The analysis reveals significant fluctuations in cash-flow-statement-based accruals and the corresponding accruals ratio over the four-year period. Net operating assets demonstrate a consistent upward trend, while accruals exhibit a more volatile pattern.
- Net Operating Assets
- Net operating assets increased steadily from US$95,585 million in 2022 to US$195,579 million in 2025. This represents a substantial cumulative growth, indicating expansion of the company’s operational footprint.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals were positive at US$1,695 million in 2022, then experienced a substantial decline, becoming negative at US$ -7,520 million in 2023. A reversal is observed in 2024, with accruals turning positive at US$18,182 million, and continuing to increase significantly to US$46,661 million in 2025. This pattern suggests considerable variability in the timing of cash receipts and disbursements relative to reported earnings.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It stood at 1.96% in 2022, decreased sharply to -7.43% in 2023, and then rose dramatically to 15.08% in 2024. The ratio continued its upward trajectory, reaching 28.28% in 2025. The negative ratio in 2023 indicates that cash flows from operations were insufficient to cover reported earnings, suggesting a reliance on non-cash adjustments to maintain profitability. The increasing positive ratio in subsequent years suggests a growing reliance on accruals to support reported earnings, which warrants further investigation.
The substantial changes in the accruals ratio, particularly the shift from positive to negative and then a rapid increase, could indicate potential earnings management or changes in the company’s accounting practices. The increasing accruals ratio in the later years, relative to net operating assets, should be examined further to assess the sustainability of reported earnings and the quality of financial reporting.
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