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
Mondelēz International Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 68,497) | 71,391) | 71,161) | 67,092) | 67,810) | |
| Less: Cash and cash equivalents | 1,351) | 1,810) | 1,923) | 3,546) | 3,619) | |
| Operating assets | 67,146) | 69,581) | 69,238) | 63,546) | 64,191) | |
| Operating Liabilities | ||||||
| Total liabilities | 41,539) | 43,025) | 44,241) | 38,769) | 40,156) | |
| Less: Short-term borrowings | 71) | 420) | 2,299) | 216) | 29) | |
| Less: Current portion of long-term debt | 2,014) | 2,101) | 383) | 1,746) | 2,741) | |
| Less: Long-term debt, excluding current portion | 15,664) | 16,887) | 20,251) | 17,550) | 17,276) | |
| Operating liabilities | 23,790) | 23,617) | 21,308) | 19,257) | 20,110) | |
| Net operating assets1 | 43,356) | 45,964) | 47,930) | 44,289) | 44,081) | |
| Balance-sheet-based aggregate accruals2 | (2,608) | (1,966) | 3,641) | 208) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -5.84% | -4.19% | 7.90% | 0.47% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Coca-Cola Co. | 0.79% | 4.65% | -3.05% | 3.39% | — | |
| PepsiCo Inc. | 0.89% | 3.36% | 0.98% | 4.76% | — | |
| Philip Morris International Inc. | -11.32% | 5.21% | 75.98% | 10.28% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | -2.93% | 2.19% | 11.97% | 3.62% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | 1.15% | 2.58% | 7.61% | -0.13% | — | |
Based on: 10-K (reporting date: 2024-12-31), 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).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 67,146 – 23,790 = 43,356
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 43,356 – 45,964 = -2,608
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,608 ÷ [(43,356 + 45,964) ÷ 2] = -5.84%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a fluctuating trend over the four-year period. The value increased from 44,289 million US dollars in 2021 to 47,930 million US dollars in 2022. Subsequently, a decline is observed, with the figure reducing to 45,964 million US dollars in 2023 and further to 43,356 million US dollars in 2024. This pattern indicates an initial expansion followed by a contraction in the company's net operating assets.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals show considerable variability and a distinct shift in trend. In 2021, the accruals stood at 208 million US dollars, which sharply increased to 3,641 million US dollars in 2022. However, in 2023, the accruals shifted to a negative value of -1,966 million US dollars and decreased further to -2,608 million US dollars in 2024. The reversal from positive to negative and the increasing magnitude of negative accruals suggest significant changes in the company's accrual accounting or business operations during this period.
- Balance-sheet-based Accruals Ratio
- The accruals ratio follows a pattern consistent with the aggregate accruals. The ratio increased substantially from 0.47% in 2021 to 7.9% in 2022, before declining sharply to -4.19% in 2023 and further to -5.84% in 2024. The pronounced rise in 2022 followed by significant negative ratios in subsequent years may imply shifts in earnings quality or potential concerns regarding accrual management practices over the analyzed timeframe.
Cash-Flow-Statement-Based Accruals Ratio
Mondelēz International Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net earnings attributable to Mondelēz International | 4,611) | 4,959) | 2,717) | 4,300) | 3,555) | |
| Less: Net cash provided by operating activities | 4,910) | 4,714) | 3,908) | 4,141) | 3,964) | |
| Less: Net cash (used in) provided by investing activities | 526) | 2,812) | (4,888) | (26) | 500) | |
| Cash-flow-statement-based aggregate accruals | (825) | (2,567) | 3,697) | 185) | (909) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -1.85% | -5.47% | 8.02% | 0.42% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Coca-Cola Co. | 2.32% | 4.51% | -1.32% | -0.16% | — | |
| PepsiCo Inc. | 4.80% | 2.17% | 1.04% | -1.48% | — | |
| Philip Morris International Inc. | -12.14% | 6.40% | 57.17% | -3.48% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | -0.56% | 1.72% | 9.94% | -0.70% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | -0.17% | 2.27% | 4.81% | -4.89% | — | |
Based on: 10-K (reporting date: 2024-12-31), 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).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -825 ÷ [(43,356 + 45,964) ÷ 2] = -1.85%
2 Click competitor name to see calculations.
The analysis of the financial reporting quality measures for the reference periods reveals several noteworthy trends and shifts across the examined metrics.
- Net Operating Assets
- This measure displayed an overall declining trend from 2022 to 2024 after an initial increase in 2022. Starting at 44,289 million US dollars at the end of 2021, net operating assets rose to a peak of 47,930 million US dollars in 2022 before falling to 45,964 million US dollars in 2023 and further dipping to 43,356 million US dollars by the end of 2024. This pattern suggests a possible contraction or more efficient utilization of operating assets subsequent to 2022.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals metric experienced significant volatility through the periods. It increased substantially from 185 million US dollars in 2021 to 3,697 million US dollars in 2022, indicating a surge in accrual components or timing differences between earnings and cash flows. However, this was followed by a marked reversal, with aggregate accruals decreasing to negative values of -2,567 million US dollars in 2023 and slightly improving to -825 million US dollars in 2024. The swing from positive to negative values highlights considerable fluctuations in the quality of earnings or accounting estimates over time.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the variability observed in aggregate accruals. Starting from a modest 0.42% in 2021, the ratio surged to 8.02% in 2022, reflecting a substantial increase in accruals relative to net operating assets. Subsequently, the ratio turned negative, reaching -5.47% in 2023 and moving to -1.85% in 2024. Negative ratios indicate that cash flows from operations may have been stronger than earnings, or that there were reversals in prior accrual estimates, reflecting decreased earnings quality or increased earnings management risks during those periods.
In summary, the data reveals increasing net operating assets and accruals in 2022, followed by declines and reversals in subsequent periods. The pronounced fluctuations in aggregate accruals and accruals ratio suggest varying levels of earnings quality and financial reporting reliability from year to year, with a notable deterioration or increased estimation uncertainty after 2022.