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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- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
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Balance-Sheet-Based Accruals Ratio
Regeneron Pharmaceuticals Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Finance lease liabilities, current portion | ||||||
| Less: Long-term debt | ||||||
| Less: Finance lease liabilities, excluding 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 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), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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 exhibit a consistent upward trend over the analyzed periods. Starting at approximately 15.77 billion US dollars at the end of 2021, the figure increased to about 17.62 billion at the close of 2022, and then to roughly 17.83 billion by the end of 2023. A more pronounced rise is observed in 2024, reaching approximately 23.05 billion. This progression indicates an expanding resource base dedicated to the company’s core operations, suggesting growth in operational scale or investment in operational assets.
- Balance-Sheet-Based Aggregate Accruals
- The balance-sheet-based aggregate accruals demonstrate significant fluctuation across the years. The accruals start at a high value of around 5.64 billion US dollars in 2021, sharply decline to approximately 1.85 billion in 2022, and further diminish to a minimal level near 208 million in 2023. However, in 2024, the accruals surge again to about 5.21 billion. This volatility reveals varying degrees of non-cash income or expense adjustments, which could impact earnings quality or reflect episodic items affecting reported profits.
- Balance-Sheet-Based Accruals Ratio
- Likewise, the accruals ratio mirrors the pattern observed in aggregate accruals but expressed as a percentage of net operating assets. The ratio begins at a relatively high 43.54% in 2021, declines substantially to 11.07% in 2022, and reaches a low of 1.17% in 2023, before climbing back to 25.51% in 2024. This ratio trend suggests that the proportion of accrual adjustments relative to net operating assets has varied greatly, indicating shifts in earnings quality, with the lowest accrual ratio in 2023 possibly reflecting improved earnings sustainability during that year.
Cash-Flow-Statement-Based Accruals Ratio
Regeneron Pharmaceuticals Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 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), 10-K (reporting date: 2020-12-31).
1 2024 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 of the company have exhibited a continuous increase over the four-year period. Starting from approximately 15.77 billion US dollars at the end of 2021, the figure rose to about 17.62 billion in 2022, showing moderate growth. The growth pace slowed between 2022 and 2023, with net operating assets reaching approximately 17.83 billion. However, a significant jump occurred in 2024, where net operating assets expanded sharply to approximately 23.05 billion US dollars. This trend suggests an expanding operational base or increased investments in operating assets.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals based on cash flow statements have demonstrated a notable declining trend during the period under review. Initially, the value was around 6.38 billion US dollars at the end of 2021 but dropped substantially to about 3.11 billion in 2022. This downward movement continued, though at a slower pace, decreasing to roughly 2.54 billion in 2023 and further to approximately 2.46 billion in 2024. The sustained reduction in aggregate accruals could indicate improvements in earnings quality or changes in working capital management.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio exhibited a marked reduction over the years analyzed. From 49.24% at the end of 2021, this ratio decreased sharply to 18.61% in 2022. Subsequently, the decline continued but at a more moderate rate, falling to 14.35% in 2023 and further down to 12.04% in 2024. This decreasing accruals ratio signals a growing proportion of cash-based earnings relative to accruals, which generally points to higher financial reporting quality and potentially lower earnings manipulation risks.