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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PepsiCo Inc. pages available for free this week:
- Income Statement
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
PepsiCo Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 27, 2025 | Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt obligations | ||||||
| Less: Long-term debt obligations, excluding current maturities | ||||||
| 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. | ||||||
| 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: 2025-12-27), 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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 balance-sheet-based accruals ratio exhibits a notable increasing trend over the observed period. Initially, the ratio was relatively low, but it experienced significant fluctuation and ultimately a substantial increase by the final year.
- Net Operating Assets
- Net operating assets demonstrate a consistent upward trend throughout the period, increasing from 50,996 US$ millions in 2022 to 60,199 US$ millions in 2025. This indicates overall growth in the company’s operational investments and assets.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals show considerable volatility. Accruals increased significantly from 499 US$ millions in 2022 to 1,743 US$ millions in 2023, then decreased to 472 US$ millions in 2024. However, a dramatic increase is observed in 2025, reaching 6,988 US$ millions. This suggests a changing pattern in the timing of revenue and expense recognition.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio began at 0.98% in 2022. It rose sharply to 3.36% in 2023, decreased slightly to 0.89% in 2024, and then experienced a substantial surge to 12.32% in 2025. This escalating ratio warrants further investigation, as a high accruals ratio can sometimes indicate potential earnings manipulation or aggressive accounting practices. The significant increase in 2025, coupled with the large increase in aggregate accruals, is particularly noteworthy and requires deeper scrutiny to understand the underlying drivers.
The divergence between the relatively stable growth in net operating assets and the volatile accruals ratio, particularly the sharp increase in 2025, suggests a potential shift in the relationship between reported earnings and underlying cash flows. Further analysis, including a comparison to industry peers and a review of the specific accrual components, is recommended to assess the quality of earnings and the sustainability of reported performance.
Cash-Flow-Statement-Based Accruals Ratio
PepsiCo Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 27, 2025 | Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to PepsiCo | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used for 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. | ||||||
| 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: 2025-12-27), 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25).
1 2025 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 information presents a review of net operating assets and related accruals over a four-year period. A consistent increase in net operating assets is observed, alongside a notable upward trend in cash-flow-statement-based aggregate accruals and the corresponding accruals ratio.
- Net Operating Assets
- Net operating assets demonstrate a steady growth pattern, increasing from 50,996 US$ millions in 2022 to 60,199 US$ millions in 2025. This represents a cumulative increase of approximately 18.03% over the period.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals exhibit a significant increasing trend. Starting at 529 US$ millions in 2022, accruals more than doubled to 1,127 US$ millions in 2023. This growth continues, reaching 2,543 US$ millions in 2024 and further increasing to 3,032 US$ millions in 2025. The magnitude of the increase in accruals is substantial, particularly in the later years of the observed period.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio mirrors the trend in aggregate accruals. The ratio begins at 1.04% in 2022 and rises to 2.17% in 2023. Subsequent increases are more pronounced, reaching 4.80% in 2024 and 5.35% in 2025. This escalating ratio suggests a growing proportion of reported earnings are attributable to accruals rather than cash flow from operations. The consistent upward movement warrants further investigation to understand the underlying drivers and potential implications for earnings quality.
The increasing accruals ratio, in conjunction with rising aggregate accruals, suggests a potential shift in the company’s earnings generation pattern. While growth in net operating assets is positive, the increasing reliance on accruals to support reported earnings should be examined to assess the sustainability of this trend and the potential for future earnings adjustments.