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
Starbucks Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Sep 29, 2024 | Oct 1, 2023 | Oct 2, 2022 | Oct 3, 2021 | Sep 27, 2020 | Sep 29, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 31,339,300) | 29,445,500) | 27,978,400) | 31,392,600) | 29,374,500) | 19,219,600) | |
| Less: Cash and cash equivalents | 3,286,200) | 3,551,500) | 2,818,400) | 6,455,700) | 4,350,900) | 2,686,600) | |
| Less: Short-term investments | 257,000) | 401,500) | 364,500) | 162,200) | 281,200) | 70,500) | |
| Operating assets | 27,796,100) | 25,492,500) | 24,795,500) | 24,774,700) | 24,742,400) | 16,462,500) | |
| Operating Liabilities | |||||||
| Total liabilities | 38,780,900) | 37,433,300) | 36,677,100) | 36,707,100) | 37,173,900) | 25,450,600) | |
| Less: Current portion of long-term debt | 1,248,900) | 1,818,600) | 1,749,000) | 998,900) | 1,249,900) | —) | |
| Less: Long-term debt, excluding current portion | 14,319,500) | 13,547,600) | 13,119,900) | 13,616,900) | 14,659,600) | 11,167,000) | |
| Operating liabilities | 23,212,500) | 22,067,100) | 21,808,200) | 22,091,300) | 21,264,400) | 14,283,600) | |
| Net operating assets1 | 4,583,600) | 3,425,400) | 2,987,300) | 2,683,400) | 3,478,000) | 2,178,900) | |
| Balance-sheet-based aggregate accruals2 | 1,158,200) | 438,100) | 303,900) | (794,600) | 1,299,100) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 28.92% | 13.66% | 10.72% | -25.79% | 45.93% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Airbnb Inc. | — | — | — | — | — | — | |
| Booking Holdings Inc. | — | -468.72% | -68.38% | 2.00% | — | — | |
| Chipotle Mexican Grill Inc. | 23.30% | 18.41% | 18.43% | 13.32% | — | — | |
| McDonald’s Corp. | 11.01% | 9.94% | 8.46% | 0.56% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Services | 7.14% | 5.15% | -1.96% | -0.80% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 12.16% | 12.17% | 12.67% | 12.65% | 200.00% | — | |
Based on: 10-K (reporting date: 2024-09-29), 10-K (reporting date: 2023-10-01), 10-K (reporting date: 2022-10-02), 10-K (reporting date: 2021-10-03), 10-K (reporting date: 2020-09-27), 10-K (reporting date: 2019-09-29).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 27,796,100 – 23,212,500 = 4,583,600
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 4,583,600 – 3,425,400 = 1,158,200
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,158,200 ÷ [(4,583,600 + 3,425,400) ÷ 2] = 28.92%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrated a fluctuating but overall increasing trend over the observed periods. Starting at approximately 3.48 billion US dollars in late 2020, the figure declined to around 2.68 billion in late 2021. Subsequently, there was a recovery phase, with values rising to nearly 2.99 billion in 2022 and 3.43 billion in 2023. The upward momentum continued, culminating in a notable increase to approximately 4.58 billion in late 2024. This upward movement in the latest period suggests an expansion in the asset base supporting operations.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals showed significant volatility across the periods. Initially, the value was positive at about 1.3 billion in 2020, followed by a large negative shift to approximately -795 million in 2021, indicating a substantial reversal or reduction in accrued amounts. This was followed by a return to positive levels over the next two years, with accruals at roughly 304 million in 2022 and 438 million in 2023. The most recent period displayed a sharp increase to approximately 1.16 billion, aligning closer to the high point seen in 2020. The volatility in accruals could reflect varying accounting estimates or operational changes affecting the timing of revenue and expenses recognition.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrored the pattern of aggregate accruals with marked fluctuations. Starting at a high of nearly 46% in 2020, the ratio plunged into negative territory at about -26% in 2021, indicating a significant reversal in accruals relative to net operating assets. Subsequently, the ratio turned positive again and exhibited a gradual increase from roughly 11% in 2022 to nearly 14% in 2023. The ratio then increased substantially to approximately 29% in 2024, suggesting a rising proportion of accrual-based accounting adjustments relative to operating assets. This pattern may signal heightened earnings management activity or shifts in accounting policies or operational timing during the most recent periods.
Cash-Flow-Statement-Based Accruals Ratio
Starbucks Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Sep 29, 2024 | Oct 1, 2023 | Oct 2, 2022 | Oct 3, 2021 | Sep 27, 2020 | Sep 29, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net earnings attributable to Starbucks | 3,760,900) | 4,124,500) | 3,281,600) | 4,199,300) | 928,300) | 3,599,200) | |
| Less: Net cash provided by operating activities | 6,095,600) | 6,008,700) | 4,397,300) | 5,989,100) | 1,597,800) | 5,047,000) | |
| Less: Net cash used in investing activities | (2,699,200) | (2,270,800) | (2,146,300) | (319,500) | (1,711,500) | (1,010,800) | |
| Cash-flow-statement-based aggregate accruals | 364,500) | 386,600) | 1,030,600) | (1,470,300) | 1,042,000) | (437,000) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 9.10% | 12.06% | 36.35% | -47.73% | 36.84% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Airbnb Inc. | — | — | — | — | — | — | |
| Booking Holdings Inc. | — | -519.27% | -67.03% | -11.13% | — | — | |
| Chipotle Mexican Grill Inc. | 13.33% | 24.18% | 30.18% | -9.35% | — | — | |
| McDonald’s Corp. | 12.31% | 6.77% | 5.35% | 2.17% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Services | 2.51% | 0.66% | -4.61% | -8.21% | -31.64% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 9.69% | 4.57% | 1.83% | 11.33% | 6.78% | — | |
Based on: 10-K (reporting date: 2024-09-29), 10-K (reporting date: 2023-10-01), 10-K (reporting date: 2022-10-02), 10-K (reporting date: 2021-10-03), 10-K (reporting date: 2020-09-27), 10-K (reporting date: 2019-09-29).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 364,500 ÷ [(4,583,600 + 3,425,400) ÷ 2] = 9.10%
2 Click competitor name to see calculations.
- Net Operating Assets
- Net operating assets showed a fluctuating trend over the observed periods. There was a notable decline from 3,478,000 thousand US dollars in 2020 to 2,683,400 thousand US dollars in 2021, representing a substantial decrease. However, in the subsequent years, net operating assets progressively increased, reaching 4,583,600 thousand US dollars by 2024, surpassing the initial value in 2020. This pattern indicates periods of contraction followed by a recovery and expansion in operating asset investment.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals exhibited considerable volatility during the time frame. In 2020, the value was positive at 1,042,000 thousand US dollars, then sharply shifted to a negative value of -1,470,300 thousand US dollars in 2021. This reversal suggests significant changes in non-cash working capital components or timing differences in revenue and expense recognition. After this sharp decline, the accruals returned to positive figures in 2022 and gradually declined in magnitude to 386,600 thousand US dollars in 2023 and further to 364,500 thousand US dollars in 2024, indicating a partial stabilization at lower positive levels.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrored the fluctuations in aggregate accruals, showing a steep drop from a positive 36.84% in 2020 to a negative -47.73% in 2021. The negative ratio in 2021 indicates that cash flows significantly differed from operating earnings during that year. Following this aberration, the ratio returned to positive territory in 2022 at 36.35% but then steadily decreased to 12.06% in 2023 and further to 9.1% in 2024. The decreasing trend in the ratio after 2022 suggests a reduction in the proportion of accruals relative to operating cash flows, possibly reflecting more conservative earnings quality or changes in cash flow dynamics.
- Summary
- Overall, the financial quality measures illustrate a period marked by significant volatility, particularly in 2021 when both net operating assets and accruals experienced sharp declines, with aggregate accruals turning negative. The following years demonstrated recovery and stabilization, with increasing net operating assets and a moderation in accruals levels and ratios. This pattern points to a cyclical adjustment phase followed by a phase of relative normalization in financial reporting quality indicators.