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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- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2013
- Current Ratio since 2013
- Price to Book Value (P/BV) since 2013
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Balance-Sheet-Based Accruals Ratio
T-Mobile US Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt | ||||||
| Less: Short-term debt to affiliates | ||||||
| Less: Short-term financing lease liabilities | ||||||
| Less: Long-term debt | ||||||
| Less: Long-term debt to affiliates | ||||||
| Less: Long-term financing lease liabilities | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AT&T Inc. | ||||||
| Verizon Communications Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Telecommunication Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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 have shown a relatively stable trend over the analyzed period. Beginning at 139,239 million US dollars at the end of 2021, there was a slight increase in 2022 to 139,640 million US dollars, followed by a moderate decline in the subsequent two years, reaching 137,094 million US dollars in 2023 and further decreasing slightly to 136,923 million US dollars by the end of 2024. Overall, this indicates a minor contraction in net operating assets after a brief stabilization.
- Balance-sheet-based Aggregate Accruals
- This measure exhibits significant volatility over the examined periods. It started at a high positive value of 10,648 million US dollars in 2021, then sharply dropped to 401 million US dollars in 2022. Subsequently, it turned negative in 2023 with a value of -2,546 million US dollars and remained negative but closer to zero at -171 million US dollars in 2024. This pattern suggests a notable shift from a strong positive accrual position to a negative one, indicating changes in the components of current assets and liabilities or in earnings management over time.
- Balance-sheet-based Accruals Ratio
- The accruals ratio mirrors the trend seen in aggregate accruals, beginning at a significant 7.95% in 2021. This sharply declined to 0.29% in 2022, and then transitioned into negative figures at -1.84% in 2023 and slightly improved to -0.12% in 2024. These fluctuations suggest a reduction in accrual components relative to net operating assets, potentially reflecting efforts to improve earnings quality or changes in accounting policies affecting accrual accounting.
Cash-Flow-Statement-Based Accruals Ratio
T-Mobile US Inc., cash flow statement computation of aggregate accruals
US$ in millions
| 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 | ||||||
| AT&T Inc. | ||||||
| Verizon Communications Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Telecommunication Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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.
The analysis of the annual financial reporting quality measures reveals specific trends in net operating assets and cash-flow-statement-based accruals over the period from December 31, 2021, to December 31, 2024.
- Net Operating Assets
- The net operating assets remained relatively stable across the four-year span, with a slight overall decrease. Starting at approximately 139,239 million US dollars in 2021, there was a minor increase to 139,640 million US dollars in 2022, followed by consecutive decreases to 137,094 million in 2023 and 136,923 million in 2024. This indicates a small contraction in assets employed in operations towards the latter years.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals displayed a notable shift from a positive to negative trend. In 2021, the value was significantly positive at 8,493 million US dollars, indicating a higher level of accruals activity or adjustments to cash flows. However, in subsequent years, the figures turned negative, dropping to -1,832 million in 2022, deepening further to -4,413 million in 2023, and slightly recovering to -1,882 million in 2024. This movement suggests increasing reversals or reductions in accruals adjustments over time.
- Cash-Flow-Statement-Based Accruals Ratio
- Mirroring the aggregate accruals trend, the accruals ratio also experienced a significant shift. It began at a positive 6.34% in 2021, signaling accruals contributing positively in relation to cash flows. The ratio then turned negative from 2022 onwards, moving to -1.31% in 2022, reaching a low of -3.19% in 2023, followed by a modest improvement to -1.37% in 2024. This ratio trend reinforces the observation of declining accrual components relative to cash flows, potentially reflecting changes in earnings quality or accounting adjustments.
Overall, the data suggests a transition from positive to negative accruals contribution relative to cash flows over the period, while the net operating assets remained relatively steady with a slight downward trend. These changes may point to evolving financial reporting dynamics, with potential implications for earnings quality and operational efficiency assessments.