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
Netflix Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 55,596,993) | 53,630,374) | 48,731,992) | 48,594,768) | 44,584,663) | |
| Less: Cash and cash equivalents | 9,033,681) | 7,804,733) | 7,116,913) | 5,147,176) | 6,027,804) | |
| Less: Short-term investments | 28,678) | 1,779,006) | 20,973) | 911,276) | —) | |
| Operating assets | 46,534,634) | 44,046,635) | 41,594,106) | 42,536,316) | 38,556,859) | |
| Operating Liabilities | ||||||
| Total liabilities | 28,981,505) | 28,886,807) | 28,143,679) | 27,817,367) | 28,735,415) | |
| Less: Short-term debt | 998,865) | 1,784,453) | 399,844) | —) | 699,823) | |
| Less: Long-term debt | 13,463,971) | 13,798,351) | 14,143,417) | 14,353,076) | 14,693,072) | |
| Operating liabilities | 14,518,669) | 13,304,003) | 13,600,418) | 13,464,291) | 13,342,520) | |
| Net operating assets1 | 32,015,965) | 30,742,632) | 27,993,688) | 29,072,025) | 25,214,339) | |
| Balance-sheet-based aggregate accruals2 | 1,273,333) | 2,748,944) | (1,078,337) | 3,857,686) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 4.06% | 9.36% | -3.78% | 14.21% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Alphabet Inc. | — | 26.92% | 17.24% | 21.43% | 22.86% | |
| Comcast Corp. | — | 2.10% | 1.29% | -6.76% | -0.48% | |
| Meta Platforms Inc. | — | 22.82% | 11.12% | 20.95% | 14.69% | |
| Trade Desk Inc. | — | 26.91% | 15.86% | 16.20% | 37.47% | |
| Walt Disney Co. | 3.76% | 0.01% | 0.08% | 3.09% | 1.73% | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | 0.00% | 13.42% | 6.82% | 7.78% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | 0.00% | 6.15% | 4.26% | -3.76% | — | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 46,534,634 – 14,518,669 = 32,015,965
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 32,015,965 – 30,742,632 = 1,273,333
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,273,333 ÷ [(32,015,965 + 30,742,632) ÷ 2] = 4.06%
4 Click competitor name to see calculations.
The balance-sheet-based accruals ratio exhibited considerable fluctuation over the four-year period. Initially positive, the ratio turned negative before returning to positive territory. Net operating assets demonstrated a generally increasing trend, though with a slight decrease between 2022 and 2023.
- Net Operating Assets
- Net operating assets decreased from US$29,072,025 thousand in 2022 to US$27,993,688 thousand in 2023, representing a decline. Subsequent years saw increases, reaching US$30,742,632 thousand in 2024 and US$32,015,965 thousand in 2025. This indicates a recovery and continued growth in net operating assets following the initial dip.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were positive in 2022 and 2024, amounting to US$3,857,686 thousand and US$2,748,944 thousand respectively. A significant shift occurred in 2023, with accruals becoming negative at US$-1,078,337 thousand. Accruals were positive again in 2025, but at a reduced level of US$1,273,333 thousand.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio was 14.21% in 2022. It experienced a substantial decrease in 2023, becoming -3.78%. The ratio then increased to 9.36% in 2024 and further to 4.06% in 2025. The negative ratio in 2023 suggests a reduction in earnings quality, potentially due to aggressive revenue recognition or delayed expense recognition during that year. The subsequent return to positive values, though lower than the initial 2022 level, indicates a possible correction in accounting practices or a change in the underlying business operations.
The volatility in the accruals ratio warrants further investigation. The negative accruals ratio in 2023, contrasted with positive values in other years, could signal potential earnings management or a temporary deviation from typical operational patterns. The increasing trend in net operating assets, coupled with the fluctuating accruals ratio, suggests a dynamic financial situation requiring continued monitoring.
Cash-Flow-Statement-Based Accruals Ratio
Netflix Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | 10,981,201) | 8,711,631) | 5,407,990) | 4,491,924) | 5,116,228) | |
| Less: Net cash provided by operating activities | 10,149,273) | 7,361,364) | 7,274,301) | 2,026,257) | 392,610) | |
| Less: Net cash (used in) provided by investing activities | 1,041,688) | (2,181,784) | 541,751) | (2,076,392) | (1,339,853) | |
| Cash-flow-statement-based aggregate accruals | (209,760) | 3,532,051) | (2,408,062) | 4,542,059) | 6,063,471) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -0.67% | 12.03% | -8.44% | 16.73% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Alphabet Inc. | — | 9.42% | -0.52% | -7.90% | 17.48% | |
| Comcast Corp. | — | 2.38% | -3.44% | -3.88% | -0.83% | |
| Meta Platforms Inc. | — | 15.08% | -7.43% | 1.96% | -14.89% | |
| Trade Desk Inc. | — | -20.85% | -42.93% | -30.87% | -30.72% | |
| Walt Disney Co. | 1.58% | -1.46% | -1.97% | 1.50% | -0.29% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | 0.00% | 6.38% | -3.21% | -1.72% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | 0.00% | 2.36% | -2.49% | -1.32% | — | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -209,760 ÷ [(32,015,965 + 30,742,632) ÷ 2] = -0.67%
2 Click competitor name to see calculations.
The information presents a review of net operating assets, cash-flow-statement-based aggregate accruals, and the resulting accruals ratio over a four-year period. Net operating assets demonstrate an overall increasing trend, though with a slight decrease between 2022 and 2023. Aggregate accruals exhibit significant volatility, shifting from positive values to negative values and back again during the observed timeframe. The accruals ratio, calculated from these figures, mirrors this volatility.
- Net Operating Assets
- Net operating assets decreased from US$29,072,025 thousand in 2022 to US$27,993,688 thousand in 2023, representing a decline. However, subsequent years show growth, reaching US$30,742,632 thousand in 2024 and US$32,015,965 thousand in 2025. This suggests a recovery and continued expansion of the company’s operating asset base.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals were positive in 2022, totaling US$4,542,059 thousand. A substantial shift occurred in 2023, with accruals becoming negative at US$-2,408,062 thousand. Accruals returned to a positive value in 2024, reaching US$3,532,051 thousand, but decreased significantly in 2025 to US$-209,760 thousand. This pattern indicates considerable fluctuations in non-cash items impacting net income.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio followed the trend of aggregate accruals. It was 16.73% in 2022, decreased substantially to -8.44% in 2023, increased to 12.03% in 2024, and then decreased to -0.67% in 2025. The negative values in 2023 and 2025 suggest that cash flows are not fully supporting reported earnings during those periods. The magnitude of the ratio’s fluctuations warrants further investigation into the underlying drivers of accruals.
The observed volatility in accruals and the accruals ratio could indicate potential areas of concern regarding the quality of earnings. While positive accruals can be normal, the large swings and negative accruals in certain years suggest a need for deeper analysis to understand the reasons behind these fluctuations and their potential impact on the reliability of reported financial performance.