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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- Statement of Comprehensive Income
- Cash Flow Statement
- Common-Size Income Statement
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2016
- Return on Assets (ROA) since 2016
- Total Asset Turnover since 2016
- Price to Earnings (P/E) since 2016
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Balance-Sheet-Based Accruals Ratio
Trade Desk Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments, net | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total 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 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Walt Disney Co. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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.
The balance-sheet-based accruals ratio exhibited fluctuations over the four-year period. Net operating assets demonstrated consistent growth, while aggregate accruals and the accruals ratio showed a more variable pattern.
- Net Operating Assets
- Net operating assets increased steadily from US$668,753 thousand in 2022 to US$1,181,334 thousand in 2025, indicating consistent expansion of the company’s operational footprint.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals increased from US$100,226 thousand in 2022 to US$115,178 thousand in 2023, representing a modest rise. A significant increase was then observed in 2024, reaching US$243,725 thousand, before decreasing to US$153,678 thousand in 2025. This suggests potential shifts in the timing of revenue and expense recognition.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio was 16.20% in 2022 and decreased slightly to 15.86% in 2023. A substantial increase occurred in 2024, with the ratio reaching 26.91%. The ratio then declined considerably in 2025 to 13.91%. This pattern suggests a growing reliance on accruals relative to net operating assets in 2024, followed by a reduction in 2025. The increase in 2024 warrants further investigation to determine the underlying drivers and potential implications for earnings quality.
The divergence between the growth in net operating assets and the fluctuations in the accruals ratio suggests a dynamic relationship between the company’s operations and its accounting practices. The substantial increase in the accruals ratio in 2024, followed by a decrease in 2025, merits further scrutiny to assess the sustainability of reported earnings and the potential for earnings manipulation.
Cash-Flow-Statement-Based Accruals Ratio
Trade Desk Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| 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 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Walt Disney Co. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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 × ÷ [( + ) ÷ 2] =
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. Net operating assets demonstrate a consistent upward trend throughout the period, increasing from 668,753 thousand US dollars in 2022 to 1,181,334 thousand US dollars in 2025.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals are negative across all four years, indicating that net operating assets are increasing more rapidly than cash flows from operations. The magnitude of these accruals increased significantly from 2022 to 2023, moving from -190,975 thousand US dollars to -311,789 thousand US dollars. A decrease in the absolute value of accruals is then observed in 2024 (-188,867 thousand US dollars), followed by a further increase in 2025 (-256,785 thousand US dollars).
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrors the trend in aggregate accruals. It begins at -30.87% in 2022, declines to -42.93% in 2023, and then increases to -20.85% in 2024. The ratio subsequently increases to -23.25% in 2025. The negative sign consistently indicates that the company’s reported earnings are higher than its cash flows from operations. The most substantial deviation from cash flow occurred in 2023, as indicated by the lowest (most negative) accruals ratio. While the ratio improved in 2024, it has increased again in 2025, remaining in negative territory.
The increasing net operating assets alongside consistently negative accruals and accruals ratios suggest a reliance on non-cash transactions to support reported earnings. The fluctuation in the accruals ratio warrants further investigation to understand the underlying drivers of these accruals and their potential impact on the quality of earnings.