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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United Airlines Holdings Inc. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
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Balance-Sheet-Based Accruals Ratio
United Airlines Holdings 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 maturities of long-term debt, finance leases, and other financial liabilities | ||||||
| Less: Long-term debt, finance leases, and other financial liabilities, less 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 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Parcel Service Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 demonstrate a steady increase over the four-year period. Starting at 21,978 million US$ in 2021, the value rose slightly to 22,762 million US$ in 2022, followed by a more substantial increase to 26,596 million US$ in 2023. The upward trend continued into 2024 with a marginal rise to 26,856 million US$.
- Balance-sheet-based aggregate accruals
- This item shows considerable volatility across the reporting periods. In 2021, the aggregate accruals were negative at -610 million US$, signaling a net reduction in accruals or potentially conservative financial reporting. In 2022, there was a reversal to a positive figure of 784 million US$, indicating increased accrual activity. The figure peaked sharply in 2023 at 3,834 million US$, suggesting a significant build-up of accruals that year. However, this was followed by a dramatic decrease to 260 million US$ in 2024, revealing considerable fluctuation in the company's accrual management.
- Balance-sheet-based accruals ratio
- The accruals ratio parallels the trend of aggregate accruals with a notable increase from -2.74% in 2021 to 3.5% in 2022, and then a substantial jump to 15.54% in 2023. This considerable rise suggests a significant increase in accruals relative to net operating assets, potentially indicating changes in earnings quality or accounting practices. The ratio then sharply declines to 0.97% in 2024, reflecting a return toward lower accrual levels relative to the size of net operating assets. This volatility may warrant further investigation into the factors driving changes in accrual accounting and their implications for financial statement quality.
Cash-Flow-Statement-Based Accruals Ratio
United Airlines Holdings 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 (loss) | ||||||
| Less: Net cash provided by (used in) operating activities | ||||||
| Less: Net cash (used in) provided by investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Parcel Service Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 exhibit a general increasing trend over the analyzed periods. Starting at 21,978 million US dollars in 2021, the value rises to 22,762 million in 2022, then increases more significantly to 26,596 million in 2023, followed by a smaller rise to 26,856 million in 2024. This steady growth suggests a gradual expansion in the company's core operating assets over the four years.
- Cash-flow-statement-based aggregate accruals
- The aggregate accruals demonstrate considerable volatility without a consistent directional trend. In 2021, the accruals were negative at -2,359 million US dollars, flipping dramatically to a positive 8,500 million in 2022. The figure then declines sharply to 1,813 million in 2023, and turns negative again to -3,645 million in 2024. This pattern indicates potential fluctuations in earnings adjustments or changes in accounting estimations that may affect the quality of earnings.
- Cash-flow-statement-based accruals ratio
- The accruals ratio parallels the volatility observed in the aggregate accruals data. In 2021, the ratio was negative at -10.59%, suggesting that cash flows exceeded net income to a moderate extent. In 2022, this ratio spikes to 38%, indicating a significant increase in accruals relative to cash flows, which could reflect increased earnings management or non-cash items. The ratio decreases to 7.35% in 2023, showing a reduction in accruals, and turns negative again to -13.64% in 2024. The oscillations in this ratio highlight varying accrual practices and suggest inconsistency in the quality of accrual-related earnings components over the analyzed periods.