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% | — | — | — | |
| Amgen Inc. | 57.08% | 4.07% | — | — | — | |
| Bristol-Myers Squibb Co. | -7.12% | -3.86% | — | — | — | |
| Danaher Corp. | 3.48% | -1.55% | — | — | — | |
| Eli Lilly & Co. | 28.59% | 11.56% | — | — | — | |
| Gilead Sciences Inc. | 1.04% | -2.92% | — | — | — | |
| Johnson & Johnson | -21.13% | 19.84% | — | — | — | |
| Merck & Co. Inc. | 3.16% | 0.46% | — | — | — | |
| Pfizer Inc. | 30.66% | 24.95% | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 1.17% | 11.07% | — | — | — | |
| Thermo Fisher Scientific Inc. | 4.96% | -1.78% | — | — | — | |
| Vertex Pharmaceuticals Inc. | 61.24% | 14.07% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 7.35% | 4.85% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 7.79% | 5.30% | 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.
The analysis of financial reporting quality between 2020 and 2023 reveals significant volatility in accrual patterns and the composition of net operating assets, indicating a period of rapid fluctuation in the relationship between reported earnings and cash flows.
- Net Operating Assets Trend
- Net operating assets underwent a substantial transformation, transitioning from a negative balance of US$ 1,912 million in 2020 to a peak of US$ 10,294 million by December 31, 2022. A subsequent contraction is noted in 2023, with the value declining to US$ 5,825 million, suggesting a period of aggressive expansion followed by a normalization or reduction of the operating asset base.
- Aggregate Accruals Dynamics
- Balance-sheet-based aggregate accruals exhibited extreme variance over the four-year period. After starting at negative US$ 2,023 million in 2020, accruals surged to US$ 6,094 million in 2021 and remained relatively stable at US$ 6,112 million in 2022. A sharp reversal occurred in 2023, with accruals swinging to a negative US$ 4,469 million, reflecting a significant shift in the timing of revenue and expense recognition relative to cash movements.
- Accruals Ratio Interpretation
- The balance-sheet-based accruals ratio shows a precipitous decline from a peak of 536.93% in 2021 to 84.44% in 2022, eventually reaching -55.45% in 2023. The exceptionally high ratio in 2021 suggests that a large proportion of the reported earnings were not supported by cash flows. The move into negative territory by 2023 indicates a reversal of this trend, where cash flows have exceeded accrual-based earnings, or significant non-cash charges have been recognized, thereby altering the earnings quality profile.
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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% | — | — | — | |
| Amgen Inc. | 52.47% | 8.81% | — | — | — | |
| Bristol-Myers Squibb Co. | -5.99% | -9.10% | — | — | — | |
| Danaher Corp. | 8.20% | 1.44% | — | — | — | |
| Eli Lilly & Co. | 28.01% | 10.27% | — | — | — | |
| Gilead Sciences Inc. | -0.19% | -4.95% | — | — | — | |
| Johnson & Johnson | 13.66% | 10.78% | — | — | — | |
| Merck & Co. Inc. | 2.23% | 0.61% | — | — | — | |
| Pfizer Inc. | 19.96% | 18.46% | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 14.35% | 18.61% | — | — | — | |
| Thermo Fisher Scientific Inc. | 3.80% | -0.06% | — | — | — | |
| Vertex Pharmaceuticals Inc. | 62.03% | -14.45% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 9.68% | 2.52% | 15.89% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 8.59% | 4.25% | 14.62% | — | — | |
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.
The financial data reflects significant volatility in accruals and net operating assets over the four-year period ending December 31, 2023. A period of rapid expansion in both operating assets and accruals occurred between 2020 and 2022, followed by a sharp contraction in the final year.
- Net Operating Assets Trend
- Net operating assets transitioned from a negative position of -1,912 million USD in 2020 to a peak of 10,294 million USD in 2022. This represents a substantial accumulation of operating resources. However, by December 31, 2023, these assets decreased to 5,825 million USD, indicating a significant reduction in the operating asset base.
- Aggregate Accruals Performance
- Cash-flow-statement-based aggregate accruals exhibit a trajectory closely aligned with net operating assets. After starting at -1,102 million USD in 2020, accruals spiked to 7,105 million USD in 2021 and peaked at 8,557 million USD in 2022. A sharp reversal occurred in 2023, with accruals falling to -5,802 million USD.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio demonstrates extreme fluctuations, suggesting varying levels of alignment between earnings and cash flows. In 2021, the ratio reached an exceptionally high 626.00%, indicating that accruals significantly exceeded net operating assets. This ratio moderated to 118.22% in 2022 and shifted to a negative 71.99% in 2023. This transition to a negative ratio suggests a shift toward a period where cash flow exceeds accrual-based earnings, marking a reversal of the trend observed in the preceding years.
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