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
Microsoft Corp., balance sheet computation of aggregate accruals
US$ in millions
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 758,376) | 619,003) | 512,163) | 411,976) | 364,840) | 333,779) | |
| Less: Cash and cash equivalents | 20,935) | 30,242) | 18,315) | 34,704) | 13,931) | 14,224) | |
| Less: Short-term investments | 55,908) | 64,323) | 57,228) | 76,558) | 90,826) | 116,110) | |
| Operating assets | 681,533) | 524,438) | 436,620) | 300,714) | 260,083) | 203,445) | |
| Operating Liabilities | |||||||
| Total liabilities | 315,989) | 275,524) | 243,686) | 205,753) | 198,298) | 191,791) | |
| Less: Short-term debt | —) | —) | 6,693) | —) | —) | —) | |
| Less: Current portion of long-term debt | 9,227) | 2,999) | 2,249) | 5,247) | 2,749) | 8,072) | |
| Less: Current finance lease liabilities | 4,290) | 3,172) | 2,349) | 1,197) | 1,060) | 791) | |
| Less: Long-term debt, excluding current portion | 31,067) | 40,152) | 42,688) | 41,990) | 47,032) | 50,074) | |
| Less: Long-term finance lease liabilities | 62,304) | 43,000) | 24,796) | 15,870) | 13,842) | 11,750) | |
| Operating liabilities | 209,101) | 186,201) | 164,911) | 141,449) | 133,615) | 121,104) | |
| Net operating assets1 | 472,432) | 338,237) | 271,709) | 159,265) | 126,468) | 82,341) | |
| Balance-sheet-based aggregate accruals2 | 134,195) | 66,528) | 112,444) | 32,797) | 44,127) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 33.11% | 21.81% | 52.18% | 22.96% | 42.27% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Accenture PLC | — | 2.83% | 35.69% | 16.32% | 21.70% | 27.93% | |
| Adobe Inc. | — | -5.28% | -3.83% | 1.85% | -8.24% | 14.14% | |
| AppLovin Corp. | — | -20.02% | -0.63% | -1.52% | 36.28% | — | |
| Cadence Design Systems Inc. | — | 9.47% | 39.84% | 11.17% | 26.65% | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Datadog Inc. | — | 53.88% | -28.51% | -35.73% | 17.56% | — | |
| International Business Machines Corp. | — | 16.28% | 2.79% | 2.42% | 1.55% | — | |
| Intuit Inc. | — | 3.52% | 3.35% | -1.74% | 85.68% | 139.73% | |
| Oracle Corp. | 34.01% | 20.79% | 4.30% | 51.77% | 9.90% | — | |
| Palantir Technologies Inc. | — | 509.21% | — | — | — | — | |
| Palo Alto Networks Inc. | — | 32.24% | 89.91% | 137.01% | -124.73% | 85.21% | |
| Salesforce Inc. | 13.74% | 0.71% | -2.46% | -2.30% | 57.74% | — | |
| ServiceNow Inc. | — | 41.98% | 22.91% | 61.79% | 12.89% | — | |
| Synopsys Inc. | — | 154.48% | 7.85% | 13.85% | 5.01% | 0.36% | |
| Workday Inc. | 28.83% | 20.74% | 28.44% | -11.24% | 55.93% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 0.00% | 21.94% | 26.16% | 18.26% | 29.59% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 14.50% | 21.34% | 9.00% | 18.16% | — | |
Based on: 10-K (reporting date: 2026-06-30), 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).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 681,533 – 209,101 = 472,432
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 472,432 – 338,237 = 134,195
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 134,195 ÷ [(472,432 + 338,237) ÷ 2] = 33.11%
4 Click competitor name to see calculations.
The analysis of financial reporting quality reveals a period of significant expansion in net operating assets coupled with substantial volatility in aggregate accruals. While the operational asset base has grown consistently, the relationship between accruals and these assets has fluctuated markedly over the five-year period, indicating shifts in earnings quality.
- Net Operating Assets Growth
- A consistent and aggressive upward trajectory is observed in net operating assets, which rose from US$ 126,468 million in June 2022 to US$ 472,432 million by June 2026. The most significant acceleration occurred between June 2023 and June 2024, where assets increased by approximately 70%, reflecting a substantial expansion of the operational balance sheet.
- Aggregate Accruals Dynamics
- Balance-sheet-based aggregate accruals exhibit high volatility rather than a linear trend. After a decline between 2022 and 2023, accruals surged to US$ 112,444 million in 2024, dropped sharply to US$ 66,528 million in 2025, and peaked at US$ 134,195 million in 2026. This irregular pattern suggests periodic fluctuations in the timing of revenue recognition or the accrual of expenses relative to cash flows.
- Accruals Ratio and Reporting Quality
- The accruals ratio demonstrates significant instability, moving from 42.27% in 2022 to a low of 21.81% in 2025, with a notable peak of 52.18% in 2024. The spike in 2024 indicates a period where a larger portion of earnings was derived from non-cash accruals relative to net operating assets, which typically suggests a temporary decrease in the quality of reported earnings. Conversely, the decline to 21.81% in 2025 suggests a higher quality of earnings, as cash flow more closely aligned with reported results. The ratio ended the period at 33.11% in 2026, representing a moderate level of accrual dependency.
AI Ask an analyst for more
Cash-Flow-Statement-Based Accruals Ratio
Microsoft Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income | 133,749) | 101,832) | 88,136) | 72,361) | 72,738) | 61,271) | |
| Less: Net cash from operations | 182,935) | 136,162) | 118,548) | 87,582) | 89,035) | 76,740) | |
| Less: Net cash used in investing | (139,500) | (72,599) | (96,970) | (22,680) | (30,311) | (27,577) | |
| Cash-flow-statement-based aggregate accruals | 90,314) | 38,269) | 66,558) | 7,459) | 14,014) | 12,108) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 22.28% | 12.55% | 30.89% | 5.22% | 13.42% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Accenture PLC | — | -6.95% | 24.31% | -0.19% | 11.87% | 11.80% | |
| Adobe Inc. | — | -14.85% | -21.90% | -21.73% | -19.93% | 9.21% | |
| AppLovin Corp. | — | -27.29% | -10.24% | -15.40% | 22.07% | — | |
| Cadence Design Systems Inc. | — | -3.48% | 17.36% | 3.78% | 15.03% | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Datadog Inc. | — | 206.67% | 30.92% | 53.36% | -34.44% | — | |
| International Business Machines Corp. | — | 10.47% | -3.73% | 0.99% | -7.22% | — | |
| Intuit Inc. | — | -0.10% | -8.44% | -8.74% | 25.60% | 58.72% | |
| Oracle Corp. | 29.14% | 13.98% | -1.01% | 42.79% | -30.58% | — | |
| Palantir Technologies Inc. | — | 2,593.23% | — | — | — | — | |
| Palo Alto Networks Inc. | — | -8.91% | 33.84% | -37.95% | -196.64% | -68.30% | |
| Salesforce Inc. | 1.74% | -6.66% | -8.44% | -8.49% | 21.96% | — | |
| ServiceNow Inc. | — | -29.72% | -7.12% | 15.44% | 8.80% | — | |
| Synopsys Inc. | — | 71.60% | -7.64% | 0.20% | -4.64% | -4.88% | |
| Workday Inc. | -55.17% | -4.25% | 34.56% | 18.64% | -0.65% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 0.00% | 10.41% | 11.97% | 7.19% | 2.21% | — | |
| 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: 2026-06-30), 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).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 90,314 ÷ [(472,432 + 338,237) ÷ 2] = 22.28%
2 Click competitor name to see calculations.
Analysis of the cash-flow-statement-based accruals reveals a period of significant volatility in financial reporting quality metrics occurring alongside an aggressive expansion of the operating asset base.
- Net Operating Assets Trend
- A consistent and substantial upward trajectory is observed in net operating assets, which grew from 126,468 million US dollars in 2022 to 472,432 million US dollars by 2026. This steady expansion indicates a significant increase in the scale of the operating infrastructure over the observed period.
- Aggregate Accruals Volatility
- Cash-flow-statement-based aggregate accruals exhibit high volatility. A notable decrease occurred in 2023, reaching 7,459 million US dollars, followed by a sharp increase to 66,558 million US dollars in 2024. A subsequent decline to 38,269 million US dollars in 2025 was followed by a peak of 90,314 million US dollars in 2026. These fluctuations indicate inconsistent gaps between accrual-based accounting earnings and actual cash generation.
- Accruals Ratio Interpretation
- The accruals ratio reflects the instability observed in the aggregate accruals. The ratio reached a low of 5.22% in 2023, suggesting a high correlation between reported earnings and cash flows. However, a significant spike to 30.89% in 2024 points to a period where earnings were significantly decoupled from cash flows. The ratio then corrected to 12.55% in 2025 before rising again to 22.28% in 2026.
The overall pattern demonstrates that while the asset base has grown linearly, the reporting quality—as measured by the accruals ratio—has been subject to periodic fluctuations. The recurring spikes in the ratio suggest intermittent periods of increased non-cash earnings, which may be attributed to changes in working capital management or timing differences in revenue and expense recognition.
AI Ask an analyst for more