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.
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Monster Beverage Corp. pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Solvency Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Price to Operating Profit (P/OP) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Monster Beverage Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current finance lease liabilities | ||||||
| Less: Noncurrent 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 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
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
= – =
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= – =
3 2023 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.
The data displays several key financial metrics over a four-year period, highlighting the company's net operating assets and accrual-based measures.
- Net Operating Assets
- There is a consistent and significant upward trend in net operating assets, increasing from approximately 3,099,916 thousand US dollars in 2020 to 4,981,932 thousand US dollars in 2023. This growth reflects continued investment and expansion in the company's core operating assets over the period.
- Balance-sheet-based Aggregate Accruals
- Aggregate accruals exhibit a pronounced increase from 258,170 thousand US dollars in 2020 to a peak of 864,621 thousand US dollars in 2022, followed by a decrease to 625,548 thousand US dollars in 2023. This pattern suggests a rise in non-cash adjustments until 2022, with a subsequent reduction, potentially indicating a normalization or correction of accrual estimates.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, representing aggregate accruals as a percentage of net operating assets, rises considerably from 8.69% in 2020 to 22.03% in 2022, before declining to 13.4% in 2023. The elevated ratio in 2022 implies a higher proportion of accruals relative to operating assets, which may raise considerations about earnings quality for that year. The decrease in 2023 signals a move towards a lower accrual intensity relative to asset size.
Overall, these trends demonstrate growing operating assets accompanied by increased accrual activity peaking in 2022 and partially reverting in 2023. The fluctuation in accrual ratios indicates varying levels of earnings management or accounting adjustments during the period analyzed.
Cash-Flow-Statement-Based Accruals Ratio
Monster Beverage Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
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 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
The analysis of the annual financial reporting quality measures reveals notable trends in net operating assets, cash-flow-statement-based aggregate accruals, and the accruals ratio over the four-year period ending December 31, 2023.
- Net Operating Assets
- The net operating assets have shown consistent and substantial growth throughout the period. Starting at approximately US$3.1 billion in 2020, the figure increased to about US$3.5 billion in 2021, followed by a more pronounced rise to approximately US$4.4 billion in 2022, and further to nearly US$5.0 billion in 2023. This upward trend indicates an ongoing expansion in the company's operating asset base.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals exhibit a fluctuating pattern. The value increased dramatically from approximately US$518 million in 2020 to over US$1.2 billion in 2021. Subsequently, a significant decrease to around US$465 million occurred in 2022, followed by a further decline to approximately US$107 million in 2023. This volatility may reflect varying components of accruals or changes in accounting practices or operational conditions over these years.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the movement seen in aggregate accruals, showing a peak at 36.83% in 2021 from 17.43% in 2020, before markedly decreasing to 11.86% in 2022 and further down to a low of 2.28% in 2023. The sharp decline in the last two years suggests an improvement in the quality of reported earnings, implying lower reliance on accrual adjustments relative to cash flows.
Overall, the data indicates a steady expansion in the company's operational asset base combined with a reduction in the proportion of accruals relative to operating cash flows in recent years. This may reflect enhanced financial reporting quality with potentially more sustainable earnings patterns.