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
Tesla Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 137,806) | 122,070) | 106,618) | 82,338) | 62,131) | |
| Less: Cash and cash equivalents | 16,513) | 16,139) | 16,398) | 16,253) | 17,576) | |
| Less: Short-term investments | 27,546) | 20,424) | 12,696) | 5,932) | 131) | |
| Operating assets | 93,747) | 85,507) | 77,524) | 60,153) | 44,424) | |
| Operating Liabilities | ||||||
| Total liabilities | 54,941) | 48,390) | 43,009) | 36,440) | 30,548) | |
| Less: Current portion of debt and finance leases | 1,640) | 2,456) | 2,373) | 1,502) | 1,589) | |
| Less: Debt and finance leases, net of current portion | 6,736) | 5,757) | 2,857) | 1,597) | 5,245) | |
| Operating liabilities | 46,565) | 40,177) | 37,779) | 33,341) | 23,714) | |
| Net operating assets1 | 47,182) | 45,330) | 39,745) | 26,812) | 20,710) | |
| Balance-sheet-based aggregate accruals2 | 1,852) | 5,585) | 12,933) | 6,102) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 4.00% | 13.13% | 38.86% | 25.68% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Ford Motor Co. | — | 8.31% | 9.51% | 0.69% | -3.87% | |
| General Motors Co. | -1.44% | 2.77% | 4.95% | 6.06% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Automobiles & Components | 0.00% | 6.37% | 10.25% | 5.19% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 0.00% | 12.07% | 12.01% | 13.04% | — | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 93,747 – 46,565 = 47,182
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 47,182 – 45,330 = 1,852
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,852 ÷ [(47,182 + 45,330) ÷ 2] = 4.00%
4 Click competitor name to see calculations.
The information presents a review of net operating assets, aggregate accruals, and the resulting accruals ratio over a four-year period. A notable trend is observed in the balance-sheet-based accruals ratio, which demonstrates significant fluctuation during the analyzed timeframe.
- Net Operating Assets
- Net operating assets exhibit a consistent upward trend throughout the period, increasing from US$26,812 million in 2022 to US$47,182 million in 2025. This indicates sustained growth in the company’s operational investments and assets.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals initially increase substantially, rising from US$6,102 million in 2022 to US$12,933 million in 2023. However, subsequent years show a marked decline, decreasing to US$5,585 million in 2024 and further to US$1,852 million in 2025. This suggests a changing pattern in the accumulation of non-cash income and expenses.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It increases significantly from 25.68% in 2022 to 38.86% in 2023, indicating a greater proportion of earnings derived from accruals relative to net operating assets. Following 2023, the ratio declines sharply to 13.13% in 2024 and further to 4.00% in 2025. This substantial decrease suggests a diminishing reliance on accruals to support reported earnings and a potential shift towards more cash-based earnings generation. The ratio’s movement warrants further investigation to understand the underlying drivers of these changes and their implications for earnings quality.
The considerable volatility in the accruals ratio, particularly the decline after 2023, suggests a potential change in accounting practices, operational efficiency, or earnings management behavior. Continued monitoring of this ratio is recommended to assess the sustainability of the observed trends and to evaluate the overall quality of reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
Tesla Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to common stockholders | 3,794) | 7,091) | 14,997) | 12,556) | 5,519) | |
| Less: Net cash provided by operating activities | 14,747) | 14,923) | 13,256) | 14,724) | 11,497) | |
| Less: Net cash used in investing activities | (15,478) | (18,787) | (15,584) | (11,973) | (7,868) | |
| Cash-flow-statement-based aggregate accruals | 4,525) | 10,955) | 17,325) | 9,805) | 1,890) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 9.78% | 25.75% | 52.06% | 41.27% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Ford Motor Co. | — | 9.36% | 4.87% | -3.26% | -0.43% | |
| General Motors Co. | -4.81% | 3.86% | 2.42% | 7.79% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Automobiles & Components | 0.00% | 8.77% | 8.36% | 5.47% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 0.00% | 9.43% | 4.25% | 1.57% | — | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 4,525 ÷ [(47,182 + 45,330) ÷ 2] = 9.78%
2 Click competitor name to see calculations.
The information presents a review of net operating assets, cash-flow-statement-based aggregate accruals, and the resulting accruals ratio over a four-year period. A notable pattern emerges regarding the relationship between operating assets and accruals.
- Net Operating Assets
- Net operating assets demonstrate a consistent upward trend throughout the period. Beginning at US$26,812 million in 2022, they increased to US$39,745 million in 2023, then to US$45,330 million in 2024, and finally reached US$47,182 million in 2025. The rate of increase decelerates over time, suggesting a maturing growth phase.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals exhibit a more volatile pattern. They rose significantly from US$9,805 million in 2022 to US$17,325 million in 2023, mirroring the increase in net operating assets. However, in 2024, accruals decreased to US$10,955 million, and continued to decline substantially to US$4,525 million in 2025. This suggests a diminishing reliance on accruals to support reported earnings as the period progresses.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, calculated as a percentage, reflects the proportion of earnings attributable to accruals rather than cash flow. The ratio increased from 41.27% in 2022 to a peak of 52.06% in 2023, indicating a greater reliance on accruals relative to operating assets. Subsequently, the ratio decreased sharply to 25.75% in 2024 and further to 9.78% in 2025. This substantial decline suggests improving cash flow generation relative to reported earnings and a potentially higher quality of earnings in the later years of the period. The decreasing trend in the accruals ratio warrants further investigation to determine the underlying drivers of this change and assess any potential implications for financial reporting quality.
In summary, while net operating assets consistently increased, the associated accruals and accruals ratio demonstrate a shifting dynamic. The significant reduction in both accruals and the accruals ratio in the final two years suggests a move towards greater cash flow-based earnings and potentially improved financial reporting quality.