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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Balance-Sheet-Based Accruals Ratio
Paramount Global, balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current debt | ||||||
| Less: Long-term debt, net of current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Alphabet Inc. | ||||||
| Charter Communications Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Walt Disney Co. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= – =
3 2022 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.
- Net Operating Assets
- The net operating assets have shown a consistent rising trend over the four-year period. Starting at US$31,630 million at the end of 2019, the figure increased to US$33,002 million in 2020, further rose to US$34,519 million in 2021, and reached US$36,567 million by the end of 2022. This steady growth indicates expanding operating resources or investments in operational capacity.
- Balance-Sheet-Based Aggregate Accruals
- There was a significant decline in the balance-sheet-based aggregate accruals from US$18,996 million at the end of 2019 to US$1,372 million in 2020. Following 2020, the aggregate accruals slightly increased to US$1,517 million in 2021 and US$2,048 million in 2022. Although there was a modest recovery post-2020, the accruals remained substantially lower than the 2019 figure, indicating a possible change in accounting policies, operational dynamics, or recognition timing affecting accruals.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio experienced a dramatic drop from 85.83% at the end of 2019 to 4.25% in 2020. This ratio then shows a minor increase to 4.49% in 2021 and 5.76% in 2022. The sharp decline between 2019 and 2020, with limited subsequent increases, mirrors the pattern observed in aggregate accruals and suggests a fundamental shift in the composition or magnitude of accruals relative to net operating assets.
Cash-Flow-Statement-Based Accruals Ratio
Paramount Global, cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net earnings attributable to Paramount | ||||||
| Less: Net cash flow provided by (used for) operating activities | ||||||
| Less: Net cash flow (used for) provided by investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Alphabet Inc. | ||||||
| Charter Communications Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Walt Disney Co. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 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.
- Net Operating Assets
- The net operating assets showed a consistent upward trend over the four-year period. Starting at US$31,630 million in 2019, the figure increased steadily each year, reaching US$36,567 million by the end of 2022. This reflects a gradual expansion in the company's operational asset base.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals exhibited significant variability across the years. The value was notably high at US$2,231 million in 2019, then dropped dramatically to US$144 million in 2020. It subsequently increased again to US$1,306 million in 2021 and further to US$1,764 million in 2022. This fluctuation suggests periods of changing accrual activities, possibly linked to variations in revenue recognition or expense timing.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrored the pattern observed in aggregate accruals. Starting at a relatively high 10.08% in 2019, it diminished sharply to 0.45% in 2020. Afterwards, it rose to 3.87% in 2021 and reached 4.96% in 2022. The ratio’s volatility indicates changing proportions of accruals relative to net operating assets, possibly impacting the quality and reliability of earnings over time.