Stock Analysis on Net
Stock Analysis on Net

Microsoft Corp. (NASDAQ:MSFT)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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.

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Balance-Sheet-Based Accruals Ratio

Microsoft Corp., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Jun 30, 2025 Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020
Operating Assets
Total assets
Less: Cash and cash equivalents
Less: Short-term investments
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term debt
Less: Current portion of long-term debt
Less: Current finance lease liabilities
Less: Long-term debt, excluding current portion
Less: Long-term finance lease liabilities
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Accenture PLC
Adobe Inc.
Cadence Design Systems Inc.
CrowdStrike Holdings Inc.
Datadog Inc.
Fair Isaac Corp.
International Business Machines Corp.
Intuit Inc.
Oracle Corp.
Palantir Technologies Inc.
Palo Alto Networks Inc.
Salesforce Inc.
ServiceNow Inc.
Synopsys Inc.
Workday Inc.
Balance-Sheet-Based Accruals Ratio, Sector
Software & Services
Balance-Sheet-Based Accruals Ratio, Industry
Information Technology

Based on: 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), 10-K (reporting date: 2020-06-30).

1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =

2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =

3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =

4 Click competitor name to see calculations.

Net Operating Assets
The net operating assets exhibited a consistent upward trajectory over the examined period, increasing significantly from US$82,341 million in mid-2021 to US$338,237 million by mid-2025. This expansion suggests growth in the company's operational scale or investment in operational resources.
Balance-sheet-based Aggregate Accruals
The aggregate accruals displayed volatility throughout the years. Beginning at US$27,741 million in mid-2021, the figure rose to a peak of US$44,127 million in mid-2022. Subsequently, it declined to US$32,797 million in mid-2023, then sharply surged to US$112,444 million in mid-2024, before decreasing again to US$66,528 million in mid-2025. These fluctuations indicate varying levels of accrual adjustments relative to the company's financial activities and may reflect changes in accounting estimates or operational conditions.
Balance-sheet-based Accruals Ratio
The accruals ratio, expressing accruals as a percentage of net operating assets, showed notable variability. It started at 40.52% in 2021, increased slightly to 42.27% in 2022, then decreased markedly to 22.96% in 2023. A substantial increase to 52.18% occurred in 2024, followed by a decline to 21.81% in 2025. This pattern indicates inconsistency in accruals relative to net operating assets, highlighting periods of potentially higher financial reporting discretion or adjustments during 2022 and 2024, contrasted with more moderate accrual levels in other years.

Cash-Flow-Statement-Based Accruals Ratio

Microsoft Corp., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Jun 30, 2025 Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020
Net income
Less: Net cash from operations
Less: Net cash used in investing
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Accenture PLC
Adobe Inc.
Cadence Design Systems Inc.
CrowdStrike Holdings Inc.
Datadog Inc.
Fair Isaac Corp.
International Business Machines Corp.
Intuit Inc.
Oracle Corp.
Palantir Technologies Inc.
Palo Alto Networks Inc.
Salesforce Inc.
ServiceNow Inc.
Synopsys Inc.
Workday Inc.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Software & Services
Cash-Flow-Statement-Based Accruals Ratio, Industry
Information Technology

Based on: 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), 10-K (reporting date: 2020-06-30).

1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =

2 Click competitor name to see calculations.

Net Operating Assets
The net operating assets demonstrate a clear upward trajectory over the five-year period. Starting at US$82,341 million in mid-2021, the figure increased notably year-over-year, reaching US$338,237 million by mid-2025. This consistent growth suggests an expansion in the company’s operating asset base, potentially indicative of increased investments or asset accumulation to support business operations.
Cash-Flow-Statement-Based Aggregate Accruals
The cash-flow-statement-based aggregate accruals exhibit variability throughout the period. Initially, there is a moderate increase from US$12,108 million in 2021 to US$14,014 million in 2022, followed by a decline to US$7,459 million in 2023. Subsequently, a sharp rise is observed in 2024, with accruals reaching US$66,558 million, before dropping again to US$38,269 million in 2025. This fluctuation might indicate periods of significant changes in working capital components or timing differences between accrual accounting and cash flows.
Cash-Flow-Statement-Based Accruals Ratio
The accruals ratio, expressed as a percentage, mirrors the volatility seen in aggregate accruals but relative to net operating assets. Starting at 17.68% in 2021, the ratio decreases over the next two years to 5.22% by 2023, denoting a reduced level of accruals compared to operating assets. However, in 2024, the ratio spikes markedly to 30.89%, indicating a substantial increase in accruals relative to the asset base. The ratio then declines to 12.55% in 2025, though it remains higher than the 2022 and 2023 levels. This pattern may reflect episodic changes in accounting estimates or operational conditions impacting accruals, affecting the quality and timing of reported earnings.