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
Super Micro Computer Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 9,826,092) | 3,674,729) | 3,205,077) | 2,241,964) | 1,918,646) | 1,682,594) | |
| Less: Cash and cash equivalents | 1,669,766) | 440,459) | 267,397) | 232,266) | 210,533) | 248,164) | |
| Operating assets | 8,156,326) | 3,234,270) | 2,937,680) | 2,009,698) | 1,708,113) | 1,434,430) | |
| Operating Liabilities | |||||||
| Total liabilities | 4,408,722) | 1,702,559) | 1,779,330) | 1,145,566) | 852,939) | 741,418) | |
| Less: Lines of credit and current portion of term loans | 402,346) | 170,123) | 449,146) | 63,490) | 23,704) | 23,647) | |
| Less: Term loans, non-current | 74,083) | 120,179) | 147,618) | 34,700) | 5,697) | —) | |
| Less: Convertible notes | 1,697,716) | —) | —) | —) | —) | —) | |
| Operating liabilities | 2,234,577) | 1,412,257) | 1,182,566) | 1,047,376) | 823,538) | 717,771) | |
| Net operating assets1 | 5,921,749) | 1,822,013) | 1,755,114) | 962,322) | 884,575) | 716,659) | |
| Balance-sheet-based aggregate accruals2 | 4,099,736) | 66,899) | 792,792) | 77,747) | 167,916) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 105.88% | 3.74% | 58.35% | 8.42% | 20.97% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Apple Inc. | -12.64% | -9.04% | -2.12% | 36.09% | -11.31% | — | |
| Arista Networks Inc. | -26.64% | 17.14% | 106.22% | 24.14% | — | — | |
| Cisco Systems Inc. | 75.07% | -12.09% | 5.96% | 20.24% | -7.26% | — | |
| Dell Technologies Inc. | -9.55% | 12.16% | -89.81% | -10.71% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | 11.96% | -6.96% | -13.35% | 22.01% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 21.41% | 8.97% | 18.09% | 19.19% | 200.00% | — | |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 8,156,326 – 2,234,577 = 5,921,749
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 5,921,749 – 1,822,013 = 4,099,736
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 4,099,736 ÷ [(5,921,749 + 1,822,013) ÷ 2] = 105.88%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a general upward trend over the five-year period analyzed. Starting at approximately $885 million in mid-2020, the figure increased steadily to around $962 million in 2021. A notable surge occurred from 2021 to 2022, with the value nearly doubling to approximately $1.76 billion. The upward trajectory continued in 2023, reaching about $1.82 billion. A sharp and significant increase is observed in 2024, where net operating assets surged to nearly $5.92 billion, marking more than a threefold rise compared to the previous year.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals demonstrate considerable volatility throughout the years. The value started at $168 million in 2020 and then decreased substantially to approximately $78 million in 2021. In 2022, accruals spiked sharply to nearly $793 million, followed by a sharp decline to $67 million in 2023. By 2024, the accruals escalated markedly to around $4.10 billion, reflecting an extraordinary increase that correlates with the surge seen in net operating assets in the same year.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, shows notable fluctuation and an overall increasing trend. It starts at roughly 21% in 2020, then falls significantly to 8.4% in 2021. In 2022, the ratio jumps sharply to 58.4%, indicating a considerable increase in accruals relative to net operating assets. The ratio falls again to 3.74% in 2023, reaching its lowest point in the observed period. However, in 2024, there is a dramatic rise to 105.88%, indicating that the balance-sheet-based accruals have exceeded the reported net operating assets in relative terms, which may warrant closer scrutiny regarding the quality and sustainability of earnings.
Cash-Flow-Statement-Based Accruals Ratio
Super Micro Computer Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | 1,152,666) | 639,998) | 285,163) | 111,865) | 84,308) | 71,918) | |
| Less: Net cash provided by (used in) operating activities | (2,485,972) | 663,580) | (440,801) | 122,955) | (30,334) | 262,554) | |
| Less: Net cash used in investing activities | (194,248) | (39,486) | (46,282) | (58,016) | (43,588) | (24,849) | |
| Cash-flow-statement-based aggregate accruals | 3,832,886) | 15,904) | 772,246) | 46,926) | 158,230) | (165,787) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 98.99% | 0.89% | 56.84% | 5.08% | 19.76% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Apple Inc. | -25.90% | -14.62% | 0.00% | 4.86% | -20.46% | — | |
| Arista Networks Inc. | 82.06% | 36.37% | 52.90% | 147.50% | — | — | |
| Cisco Systems Inc. | 46.78% | -7.65% | -10.18% | 1.64% | -32.20% | — | |
| Dell Technologies Inc. | -15.65% | 11.23% | -20.97% | -17.42% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Technology Hardware & Equipment | -2.79% | -10.03% | -4.10% | -0.72% | -32.83% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 6.30% | 1.47% | 2.90% | 8.62% | -15.22% | — | |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 3,832,886 ÷ [(5,921,749 + 1,822,013) ÷ 2] = 98.99%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a general upward trend over the five-year period. Starting at 884,575 thousand US dollars in 2020, there is a steady increase to 962,322 in 2021 and a significant jump to 1,755,114 in 2022. The growth continues but at a slower pace reaching 1,822,013 in 2023. However, in 2024, there is a sharp increase to 5,921,749 thousand US dollars, indicating substantial asset growth in that year.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show considerable volatility across the periods. They begin at 158,230 thousand US dollars in 2020 and decline sharply to 46,926 in 2021. In 2022, there is a pronounced increase to 772,246. This is followed by a dramatic decrease to 15,904 in 2023. In 2024, the accruals rise significantly again to 3,832,886 thousand US dollars, reflecting large fluctuations and a substantial increase in the latest period.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the behavior of aggregate accruals with marked variability. It starts relatively high at 19.76% in 2020, decreases notably to 5.08% in 2021, then spikes to 56.84% in 2022. The ratio reaches a low point of 0.89% in 2023 before surging to 98.99% in 2024. This pattern indicates significant changes in the relationship between accruals and cash flow over time, peaking overwhelmingly in the most recent period.