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, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 619,003) | 512,163) | 411,976) | 364,840) | 333,779) | 301,311) | |
| Less: Cash and cash equivalents | 30,242) | 18,315) | 34,704) | 13,931) | 14,224) | 13,576) | |
| Less: Short-term investments | 64,323) | 57,228) | 76,558) | 90,826) | 116,110) | 122,951) | |
| Operating assets | 524,438) | 436,620) | 300,714) | 260,083) | 203,445) | 164,784) | |
| Operating Liabilities | |||||||
| Total liabilities | 275,524) | 243,686) | 205,753) | 198,298) | 191,791) | 183,007) | |
| Less: Short-term debt | —) | 6,693) | —) | —) | —) | —) | |
| Less: Current portion of long-term debt | 2,999) | 2,249) | 5,247) | 2,749) | 8,072) | 3,749) | |
| Less: Current finance lease liabilities | 3,172) | 2,349) | 1,197) | 1,060) | 791) | 540) | |
| Less: Long-term debt, excluding current portion | 40,152) | 42,688) | 41,990) | 47,032) | 50,074) | 59,578) | |
| Less: Long-term finance lease liabilities | 43,000) | 24,796) | 15,870) | 13,842) | 11,750) | 8,956) | |
| Operating liabilities | 186,201) | 164,911) | 141,449) | 133,615) | 121,104) | 110,184) | |
| Net operating assets1 | 338,237) | 271,709) | 159,265) | 126,468) | 82,341) | 54,600) | |
| Balance-sheet-based aggregate accruals2 | 66,528) | 112,444) | 32,797) | 44,127) | 27,741) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 21.81% | 52.18% | 22.96% | 42.27% | 40.52% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Accenture PLC | — | 35.69% | 16.32% | 21.70% | 27.93% | 3.73% | |
| Adobe Inc. | — | -3.83% | 1.85% | -8.24% | 14.14% | 8.20% | |
| Cadence Design Systems Inc. | — | 39.84% | 11.17% | 26.65% | 4.43% | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Datadog Inc. | — | -28.51% | -35.73% | 17.56% | 173.39% | — | |
| Fair Isaac Corp. | — | 6.46% | 12.11% | -3.66% | -6.17% | -0.02% | |
| International Business Machines Corp. | — | 2.79% | 2.42% | 1.55% | -7.39% | — | |
| Intuit Inc. | — | 3.35% | -1.74% | 85.68% | 139.73% | -1.39% | |
| Oracle Corp. | 20.79% | 4.30% | 51.77% | 9.90% | 5.62% | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 32.24% | 89.91% | 137.01% | -124.73% | 85.21% | — | |
| Salesforce Inc. | 0.71% | -2.46% | -2.30% | 57.74% | 10.87% | — | |
| ServiceNow Inc. | — | 22.91% | 61.79% | 12.89% | 34.89% | — | |
| Synopsys Inc. | — | 7.85% | 13.85% | 5.01% | 0.36% | 8.40% | |
| Workday Inc. | 20.74% | 28.44% | -11.24% | 55.93% | -15.99% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 0.00% | 26.34% | 18.45% | 29.41% | 16.74% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 21.41% | 8.97% | 18.09% | 19.19% | — | |
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
= 524,438 – 186,201 = 338,237
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 338,237 – 271,709 = 66,528
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 66,528 ÷ [(338,237 + 271,709) ÷ 2] = 21.81%
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
| Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | ||
|---|---|---|---|---|---|---|---|
| Net income | 101,832) | 88,136) | 72,361) | 72,738) | 61,271) | 44,281) | |
| Less: Net cash from operations | 136,162) | 118,548) | 87,582) | 89,035) | 76,740) | 60,675) | |
| Less: Net cash used in investing | (72,599) | (96,970) | (22,680) | (30,311) | (27,577) | (12,223) | |
| Cash-flow-statement-based aggregate accruals | 38,269) | 66,558) | 7,459) | 14,014) | 12,108) | (4,171) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 12.55% | 30.89% | 5.22% | 13.42% | 17.68% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Accenture PLC | — | 24.31% | -0.19% | 11.87% | 11.80% | -13.65% | |
| Adobe Inc. | — | -21.90% | -21.73% | -19.93% | 9.21% | -0.48% | |
| Cadence Design Systems Inc. | — | 17.36% | 3.78% | 15.03% | -5.75% | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Datadog Inc. | — | 30.92% | 53.36% | -34.44% | -28.18% | — | |
| Fair Isaac Corp. | — | -8.60% | -2.41% | -13.92% | -17.25% | -10.25% | |
| International Business Machines Corp. | — | -3.73% | 0.99% | -7.22% | -1.64% | — | |
| Intuit Inc. | — | -8.44% | -8.74% | 25.60% | 58.72% | -34.22% | |
| Oracle Corp. | 13.98% | -1.01% | 42.79% | -30.58% | 25.81% | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | -8.91% | 33.84% | -37.95% | -196.64% | -68.30% | — | |
| Salesforce Inc. | -6.66% | -8.44% | -8.49% | 21.96% | 10.57% | — | |
| ServiceNow Inc. | — | -7.12% | 15.44% | 8.80% | -21.14% | — | |
| Synopsys Inc. | — | -7.64% | 0.20% | -4.64% | -4.88% | 0.92% | |
| Workday Inc. | -4.25% | 34.56% | 18.64% | -0.65% | -18.51% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 0.00% | 12.10% | 7.40% | 1.94% | 11.13% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 6.30% | 1.47% | 2.90% | 8.62% | — | |
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 × 38,269 ÷ [(338,237 + 271,709) ÷ 2] = 12.55%
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.