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
ON Semiconductor 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 | 13,215,200) | 11,978,500) | 9,626,000) | 8,668,000) | 8,425,500) | |
| Less: Cash and cash equivalents | 2,483,000) | 2,919,000) | 1,352,600) | 1,080,700) | 894,200) | |
| Operating assets | 10,732,200) | 9,059,500) | 8,273,400) | 7,587,300) | 7,531,300) | |
| Operating Liabilities | ||||||
| Total liabilities | 5,414,600) | 5,771,500) | 5,021,600) | 5,109,900) | 5,101,400) | |
| Less: Current portion of financing lease liabilities | 800) | 14,200) | 12,700) | —) | —) | |
| Less: Current portion of long-term debt | 794,000) | 147,800) | 160,700) | 531,600) | 736,000) | |
| Less: Long-term debt, excluding current portion | 2,542,600) | 3,045,700) | 2,913,900) | 2,959,700) | 2,876,500) | |
| Less: Long-term financing lease liabilities | 22,400) | 23,000) | 10,200) | —) | —) | |
| Operating liabilities | 2,054,800) | 2,540,800) | 1,924,100) | 1,618,600) | 1,488,900) | |
| Net operating assets1 | 8,677,400) | 6,518,700) | 6,349,300) | 5,968,700) | 6,042,400) | |
| Balance-sheet-based aggregate accruals2 | 2,158,700) | 169,400) | 380,600) | (73,700) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 28.41% | 2.63% | 6.18% | -1.23% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | 2.36% | 169.75% | 8.05% | — | — | |
| Analog Devices Inc. | 0.03% | -2.94% | 90.70% | -2.85% | — | |
| Applied Materials Inc. | 0.48% | 20.73% | 17.33% | 3.75% | — | |
| Broadcom Inc. | -1.58% | -5.37% | -8.72% | 8.42% | — | |
| Intel Corp. | 13.69% | 10.73% | 11.61% | — | — | |
| KLA Corp. | 3.95% | 21.25% | 3.62% | — | — | |
| Lam Research Corp. | 1.57% | 16.02% | 8.38% | — | — | |
| Micron Technology Inc. | 0.78% | 12.07% | 11.51% | 7.56% | — | |
| NVIDIA Corp. | 18.88% | 28.31% | 115.40% | — | — | |
| Qualcomm Inc. | -5.53% | 68.49% | 22.56% | 20.94% | — | |
| Texas Instruments Inc. | 31.37% | 22.75% | 18.48% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | 6.33% | 24.66% | 19.53% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | 8.97% | 18.09% | 19.19% | 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
= 10,732,200 – 2,054,800 = 8,677,400
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 8,677,400 – 6,518,700 = 2,158,700
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,158,700 ÷ [(8,677,400 + 6,518,700) ÷ 2] = 28.41%
4 Click competitor name to see calculations.
- Net Operating Assets
- Net operating assets displayed a gradual increase from 5,968,700 thousand USD in 2020 to 6,518,700 thousand USD in 2022. A more significant rise occurred in 2023, reaching 8,677,400 thousand USD. This trend suggests an expansion in the company's operating asset base over the observed period, with an accelerated increase in the latest year.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals shifted from a negative value of -73,700 thousand USD in 2020 to positive values thereafter, moving to 380,600 thousand USD in 2021 and then decreasing to 169,400 thousand USD in 2022. A substantial jump was recorded in 2023, with aggregate accruals rising sharply to 2,158,700 thousand USD. This pattern indicates fluctuations in accrual components, culminating in a pronounced increase in the most recent year.
- Balance-sheet-based Accruals Ratio
- Corresponding to aggregate accruals, the accruals ratio showed a negative value of -1.23% in 2020, turning positive to 6.18% in 2021, then decreasing to 2.63% in 2022. The ratio surged significantly to 28.41% in 2023. The marked increase in 2023 points to a considerable rise in accruals relative to net operating assets, potentially impacting the quality of earnings.
Cash-Flow-Statement-Based Accruals Ratio
ON Semiconductor 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 attributable to ON Semiconductor Corporation | 2,183,700) | 1,902,200) | 1,009,600) | 234,200) | 211,700) | |
| Less: Net cash provided by operating activities | 1,977,500) | 2,633,100) | 1,782,000) | 884,300) | 694,700) | |
| Less: Net cash used in investing activities | (1,737,900) | (705,400) | (915,100) | (453,600) | (1,510,900) | |
| Cash-flow-statement-based aggregate accruals | 1,944,100) | (25,500) | 142,700) | (196,500) | 1,027,900) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 25.59% | -0.40% | 2.32% | -3.27% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Advanced Micro Devices Inc. | 1.17% | -15.28% | 8.10% | — | — | |
| Analog Devices Inc. | -0.57% | -2.54% | -11.85% | -3.72% | — | |
| Applied Materials Inc. | -2.05% | 18.18% | 14.75% | -0.54% | — | |
| Broadcom Inc. | -6.71% | -8.94% | -12.34% | 3.65% | — | |
| Intel Corp. | 11.35% | 2.75% | 15.15% | — | — | |
| KLA Corp. | 3.66% | 18.30% | 9.27% | — | — | |
| Lam Research Corp. | -1.71% | 12.43% | 3.89% | — | — | |
| Micron Technology Inc. | -2.52% | 11.37% | 10.01% | 5.45% | — | |
| NVIDIA Corp. | -47.90% | 73.13% | 233.25% | — | — | |
| Qualcomm Inc. | -14.57% | 46.91% | 15.61% | 48.48% | — | |
| Texas Instruments Inc. | 26.35% | 28.24% | 29.95% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | 0.45% | 7.45% | 12.36% | 7.12% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | 1.47% | 2.90% | 8.62% | -15.22% | — | |
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 × 1,944,100 ÷ [(8,677,400 + 6,518,700) ÷ 2] = 25.59%
2 Click competitor name to see calculations.
The annual financial reporting quality measure data reveal several noteworthy trends over the four-year period.
- Net Operating Assets
- There is a consistent increase in net operating assets from 5,968,700 thousand US dollars in 2020 to 8,677,400 thousand US dollars in 2023. This represents a substantial growth, particularly between 2022 and 2023, indicating expansion or a buildup in operational asset base during the latest year.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals demonstrate volatility over the period. In 2020, the figure was negative (-196,500 thousand US dollars), turned positive to 142,700 thousand US dollars in 2021, shifted back to a slight negative value (-25,500 thousand US dollars) in 2022, and markedly increased to a significantly positive number (1,944,100 thousand US dollars) in 2023. This wide fluctuation suggests variability in the timing and recognition of revenues and expenses relative to cash flows.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the pattern observed in aggregate accruals, with values moving from -3.27% in 2020 to 2.32% in 2021, then declining slightly to -0.4% in 2022, before jumping to 25.59% in 2023. The sharp increase in 2023 ratio indicates a substantial rise in accruals relative to net operating assets, possibly signaling changes in accounting practices or shifts in operational efficiency in that year.
Overall, the data indicate a growing asset base accompanied by increasing accruals in 2023, which may warrant further investigation into the underlying causes of the notable increase in accruals and their impact on financial reporting quality.