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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- Income Statement
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2010
- Net Profit Margin since 2010
- Debt to Equity since 2010
- Total Asset Turnover since 2010
- Price to Earnings (P/E) since 2010
- Price to Book Value (P/BV) since 2010
- Price to Sales (P/S) since 2010
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Balance-Sheet-Based Accruals Ratio
Tesla 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 | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of debt and finance leases | ||||||
| Less: Debt and finance leases, net of 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 | ||||||
| Ford Motor Co. | ||||||
| General Motors Co. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Automobiles & Components | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | ||||||
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
- There is a consistent upward trend in net operating assets over the four-year period. The value increased from 20,710 million US dollars in 2021 to 45,330 million US dollars in 2024, more than doubling during this timeframe, indicating substantial growth in operational asset base.
- Balance-sheet-based aggregate accruals
- This metric exhibits significant fluctuations. Starting at 4,676 million US dollars in 2021, it rose moderately in 2022 to 6,102 million, then surged sharply in 2023 to 12,933 million, before declining markedly to 5,585 million in 2024. This pattern suggests considerable variability in accrual accounting components year over year.
- Balance-sheet-based accruals ratio
- The accruals ratio shows a corresponding variability. It remains relatively stable between 25.45% and 25.68% in 2021 and 2022, respectively, then spikes to 38.86% in 2023, reflecting increased accruals relative to net operating assets. In 2024, the ratio declines sharply to 13.13%, reaching the lowest point across the observed period. This indicates a reduced proportion of accruals compared to the asset base in the final year.
Cash-Flow-Statement-Based Accruals Ratio
Tesla 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 attributable to common stockholders | ||||||
| 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 | ||||||
| Ford Motor Co. | ||||||
| General Motors Co. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Automobiles & Components | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | ||||||
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 increased steadily over the four-year period, starting from US$ 20,710 million in 2021 and reaching US$ 45,330 million by 2024. This represents more than a doubling of these assets, indicating an expanding asset base and potentially increased operational scale.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals rose sharply from US$ 1,890 million in 2021 to a peak of US$ 17,325 million in 2023 before declining to US$ 10,955 million in 2024. This pattern suggests a substantial increase in the adjustments made to cash flow figures during 2022 and 2023, followed by a notable reduction in 2024, signaling a possible normalization or improved alignment between reported earnings and cash flows.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio exhibited significant volatility, rising from 10.29% in 2021 to a high of 52.06% in 2023, before dropping to 25.75% in 2024. The sharp increase to over 50% indicates a period where accruals comprised a large proportion of cash flows, potentially reflecting greater earnings management or recognition timing effects. The subsequent decrease in 2024 may reflect enhanced reporting quality or reduced earnings manipulation.
- Overall Insights
- The financial measures indicate that while the operational asset base expanded consistently, there were significant fluctuations in accrual accounting components within the cash flow statement. The peak in both aggregate accruals and accruals ratio in 2023 warrants attention as it suggests a period of increased accrual-based adjustments. The decline in these measures in 2024 could suggest improved financial reporting quality or changes in operational or accounting practices impacting accruals. Continuing to monitor these ratios will be important to assess ongoing earnings quality and the reliability of reported financial results.