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
Moderna Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 18,426) | 25,858) | 24,669) | 7,337) | 1,589) | |
| Less: Cash and cash equivalents | 2,907) | 3,205) | 6,848) | 2,624) | 236) | |
| Less: Investments | 5,697) | 6,697) | 3,879) | 1,984) | 867) | |
| Operating assets | 9,822) | 15,956) | 13,942) | 2,729) | 486) | |
| Operating Liabilities | ||||||
| Total liabilities | 4,572) | 6,735) | 10,524) | 4,775) | 415) | |
| Less: Financing lease liabilities, current | —) | 161) | 165) | 24) | —) | |
| Less: Financing lease liabilities, non-current | 575) | 912) | 599) | 110) | 39) | |
| Operating liabilities | 3,997) | 5,662) | 9,760) | 4,641) | 376) | |
| Net operating assets1 | 5,825) | 10,294) | 4,182) | (1,912) | 110) | |
| Balance-sheet-based aggregate accruals2 | (4,469) | 6,112) | 6,094) | (2,023) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -55.45% | 84.44% | 536.93% | — | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AbbVie Inc. | -22.39% | -14.27% | -9.69% | — | — | |
| Amgen Inc. | 57.08% | 4.07% | 0.70% | — | — | |
| Bristol-Myers Squibb Co. | -7.12% | -3.86% | -13.40% | — | — | |
| Danaher Corp. | 3.48% | -1.55% | 16.41% | — | — | |
| Eli Lilly & Co. | 28.84% | 11.38% | 16.60% | — | — | |
| Gilead Sciences Inc. | 1.04% | -2.92% | -2.34% | — | — | |
| Johnson & Johnson | -21.13% | 19.84% | 3.75% | — | — | |
| Merck & Co. Inc. | 3.16% | 0.46% | 25.14% | — | — | |
| Pfizer Inc. | 30.66% | 24.95% | -7.11% | — | — | |
| Regeneron Pharmaceuticals Inc. | 1.17% | 11.07% | 43.54% | — | — | |
| Thermo Fisher Scientific Inc. | 4.96% | -1.78% | 43.38% | — | — | |
| Vertex Pharmaceuticals Inc. | 61.24% | 14.07% | 18.20% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 7.36% | 4.84% | 6.18% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 7.80% | 5.29% | 5.94% | 200.00% | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 9,822 – 3,997 = 5,825
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 5,825 – 10,294 = -4,469
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -4,469 ÷ [(5,825 + 10,294) ÷ 2] = -55.45%
4 Click competitor name to see calculations.
- Net Operating Assets
- There is a significant positive shift in net operating assets from a negative value of -1,912 million US dollars at the end of 2020 to a positive 4,182 million in 2021. This upward trend continues, peaking at 10,294 million in 2022 before declining to 5,825 million in 2023. The increase between 2020 and 2022 indicates an expansion in operating asset base, although this is followed by a notable reduction in 2023, suggesting some contraction or asset disposals during that year.
- Balance-sheet-based Aggregate Accruals
- The balance-sheet-based aggregate accruals exhibit considerable volatility over the period. Starting at -2,023 million in 2020, the figure turns sharply positive to 6,094 million in 2021 and remains at a similar high level of 6,112 million in 2022. However, this reverses dramatically to -4,469 million in 2023. Such fluctuations reflect notable changes in accrual accounting practices or timing differences in revenue and expense recognition across the years, with a major reversal in 2023 that may warrant further investigation.
- Balance-sheet-based Accruals Ratio
- The accruals ratio is absent for 2020 but shows extreme variability thereafter. It spikes to 536.93% in 2021, drops significantly to 84.44% in 2022, and then turns negative to -55.45% in 2023. This pattern underscores the inconsistency in accruals relative to net operating assets during the analyzed period. The extraordinarily high ratio in 2021 implies very high accruals compared to net operating assets, while the subsequent decline and negative ratio indicate improved or more conservative accrual quality or changes in the underlying financial structure.
- General Insights
- The data reveals pronounced fluctuations in financial reporting quality measures over the four-year span. The net operating assets and accruals measures both depict significant swings, suggesting variability in asset management and accounting estimates. The extreme ratios of accruals relative to net operating assets highlight periods of potential earnings management or changes in accounting policies. Overall, the trends warrant detailed review to understand the drivers behind these variances, as they may have important implications for financial analysis and decision-making processes.
Cash-Flow-Statement-Based Accruals Ratio
Moderna Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income (loss) | (4,714) | 8,362) | 12,202) | (747) | (514) | |
| Less: Net cash provided by (used in) operating activities | (3,118) | 4,981) | 13,620) | 2,027) | (459) | |
| Less: Net cash (used in) provided by investing activities | 4,206) | (5,176) | (8,523) | (1,672) | (15) | |
| Cash-flow-statement-based aggregate accruals | (5,802) | 8,557) | 7,105) | (1,102) | (40) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -71.99% | 118.22% | 626.00% | — | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| AbbVie Inc. | -24.89% | -16.25% | -10.28% | — | — | |
| Amgen Inc. | 52.47% | 8.81% | -12.87% | — | — | |
| Bristol-Myers Squibb Co. | -5.99% | -9.10% | -12.73% | — | — | |
| Danaher Corp. | 8.20% | 1.44% | 18.48% | — | — | |
| Eli Lilly & Co. | 28.13% | 10.32% | 5.30% | — | — | |
| Gilead Sciences Inc. | -0.19% | -4.95% | -4.86% | — | — | |
| Johnson & Johnson | 13.66% | 10.78% | 8.23% | — | — | |
| Merck & Co. Inc. | 2.23% | 0.61% | 29.09% | — | — | |
| Pfizer Inc. | 19.96% | 18.46% | 13.18% | — | — | |
| Regeneron Pharmaceuticals Inc. | 14.35% | 18.61% | 49.24% | — | — | |
| Thermo Fisher Scientific Inc. | 3.80% | -0.06% | 34.69% | — | — | |
| Vertex Pharmaceuticals Inc. | 62.03% | -14.45% | 1.38% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 9.68% | 2.52% | 8.19% | 21.65% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 8.59% | 4.25% | 7.53% | 17.33% | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -5,802 ÷ [(5,825 + 10,294) ÷ 2] = -71.99%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrate substantial volatility over the four-year period. Starting with a negative value of -1912 million USD at the end of 2020, there is a marked increase to 4182 million USD in 2021, followed by a further significant rise to 10294 million USD in 2022. However, in 2023, net operating assets decrease considerably to 5825 million USD. This indicates fluctuating capital employed in operations, with a peak in 2022 before a notable reduction in the subsequent year.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals based on the cash flow statement show a high degree of variability during the observed period. The value is negative (-1102 million USD) in 2020, shifts to a strong positive position (7105 million USD) in 2021, grows further to 8557 million USD in 2022, then reverses sharply to a negative figure (-5802 million USD) in 2023. These changes suggest significant fluctuations in accrual accounting measures relative to cash flows, reflecting irregular timing differences or changes in accounting estimates.
- Cash-flow-statement-based Accruals Ratio
- This ratio was not reported for 2020 but shows extreme values in subsequent years. The ratio is exceptionally high at 626% in 2021, decreases to 118.22% in 2022, and then shifts to a negative value of -71.99% in 2023. This extreme volatility underscores irregularities or significant shifts in the relationship between accruals and cash flows, potentially indicating challenges in earnings quality or recognition timing over these years.