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, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019
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: 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), 10-K (reporting date: 2019-06-30).

1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =

2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =

3 2024 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 exhibit a substantial upward trend over the observed periods. Beginning at 54,600 million US dollars as of June 30, 2020, the figure increased consistently each year, reaching 271,709 million US dollars by June 30, 2024. This represents nearly a fivefold increase within four years, suggesting significant growth in the company's operating asset base.
Balance-sheet-based Aggregate Accruals
Aggregate accruals demonstrate notable variability with an overall rising trend. Starting at 7,337 million US dollars in mid-2020, the value surged significantly to 27,741 million in 2021 and continued to increase to 44,127 million in 2022. However, a decline to 32,797 million occurred in 2023, before a sharp increase to 112,444 million in 2024. This fluctuation indicates variability in non-cash components affecting earnings measurement, with a marked increase in the latest period.
Balance-sheet-based Accruals Ratio
The accruals ratio shows considerable fluctuation over time, reflecting changes in the proportion of accruals to net operating assets. The ratio increased sharply from 14.41% in 2020 to 40.52% in 2021 and further to 42.27% in 2022, indicating a growing influence of accruals relative to assets. In 2023, there was a decline to 22.96%, suggesting a temporary reduction in accruals relative to net operating assets. However, this reversed dramatically in 2024, with the ratio climbing to 52.18%, the highest level in the observed period, signifying a substantial increase in accrual components relative to operating assets.
Summary Insights
Overall, the data indicate rapid expansion in net operating assets, reflecting growth and increased operational capacity. The accruals measures display notable volatility, with both absolute accruals and their ratio to net operating assets increasing significantly by 2024. The elevated accruals ratio in the final period suggests increased reliance on accrual-based accounting elements, which may warrant further analysis to understand the quality and sustainability of earnings reported. The variability in accruals also points to fluctuating earnings quality, with potential implications for financial statement users assessing the consistency and reliability of reported performance.

Cash-Flow-Statement-Based Accruals Ratio

Microsoft Corp., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019
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: 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), 10-K (reporting date: 2019-06-30).

1 2024 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 data indicates a consistent and substantial increase in net operating assets over the five-year period. Starting from US$54,600 million in 2020, there is a notable upward trend, reaching US$271,709 million by 2024. The growth appears to accelerate particularly after 2022, with the largest annual increase occurring between 2023 and 2024. This pattern suggests a significant expansion in the company’s operational asset base.
Cash-Flow-Statement-Based Aggregate Accruals
The aggregate accruals exhibit considerable volatility across the observed years. There is a negative value in 2020 (-US$4,171 million), indicating that cash flows might have exceeded earnings to some extent. Subsequently, from 2021 onwards, the accruals are positive and show fluctuations: a rise to US$12,108 million in 2021, a further increase to US$14,014 million in 2022, followed by a notable decline to US$7,459 million in 2023, and then a sharp increase to US$66,558 million in 2024. The sharp increase in 2024 stands out and may imply significant changes in accounting estimates, revenue recognition, or other non-cash adjustments affecting earnings.
Cash-Flow-Statement-Based Accruals Ratio (%)
The accruals ratio mirrors the movements in aggregate accruals but expressed relative to net operating assets. The ratio was negative at -8.19% in 2020, indicating more cash inflow relative to earnings-based measures during that year. The following years see a positive ratio, peaking at 17.68% in 2021 and then slightly declining to 13.42% and 5.22% in 2022 and 2023 respectively, suggesting a moderation in accrual activities relative to the size of net operating assets. However, the ratio jumps considerably to 30.89% in 2024, corresponding to the large increase in aggregate accruals. This elevates the accrual component relative to operating assets significantly and suggests a higher degree of accrual-based adjustments in recent earnings.