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.
Paying user area
Try for free
Vertex Pharmaceuticals Inc. pages available for free this week:
- Statement of Comprehensive Income
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Common Stock Valuation Ratios
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Vertex Pharmaceuticals Inc. for $24.99.
This is a one-time payment. There is no automatic renewal.
We accept:
Balance-Sheet-Based Accruals Ratio
Vertex Pharmaceuticals Inc., balance sheet computation of aggregate accruals
US$ 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: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current finance lease liabilities | ||||||
| Less: Long-term finance 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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 exhibits significant fluctuations over the observed period. Net operating assets demonstrate a consistent upward trend, while aggregate accruals and the resulting accruals ratio display more volatile behavior.
- Net Operating Assets
- Net operating assets increased substantially from 3,605,800 in 2022 to 12,169,900 in 2025, indicating considerable growth in the company’s operational investments and activities. The growth rate appears to decelerate slightly between 2023 and 2025.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals rose dramatically from 474,000 in 2022 to 3,183,000 in 2023. They continued to increase, albeit at a slower pace, reaching 3,622,900 in 2024. A notable decrease is then observed in 2025, with aggregate accruals falling to 1,758,200. This suggests a changing pattern in the timing of cash flows relative to reported earnings.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio increased sharply from 14.07% in 2022 to 61.24% in 2023, representing a substantial reliance on accruals relative to net operating assets. The ratio decreased to 42.13% in 2024, indicating a partial reversion towards lower accrual levels. Finally, the ratio declined further to 15.57% in 2025, approaching the level observed in 2022. This pattern suggests potential shifts in accounting practices or operational cash flow generation. The high accruals ratio in 2023 warrants further investigation to assess the quality of earnings during that period.
The divergence between the growth in net operating assets and the fluctuations in aggregate accruals and the accruals ratio suggests a dynamic relationship between reported earnings and underlying cash flows. The significant increase and subsequent decrease in the accruals ratio should be examined in conjunction with other financial metrics and qualitative factors to determine the potential implications for financial reporting quality.
Cash-Flow-Statement-Based Accruals Ratio
Vertex Pharmaceuticals 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 (loss) | ||||||
| Less: Net cash provided by (used in) 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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.
Net operating assets increased substantially over the four-year period, rising from US$3.6 billion in 2022 to US$12.2 billion in 2025. Concurrent with this growth, cash-flow-statement-based aggregate accruals exhibited significant fluctuations. The cash-flow-statement-based accruals ratio, which measures the relationship between accruals and operating assets, demonstrated a corresponding pattern of volatility.
- Cash-Flow-Statement-Based Aggregate Accruals
- In 2022, aggregate accruals were negative, totaling -US$486.8 million. This indicates that cash flows from operations exceeded reported net income. A substantial positive shift occurred in 2023, with accruals reaching US$3.2 billion. This suggests a significant difference between reported net income and actual cash generated from operations. Accruals remained positive in 2024, at US$3.7 billion, before decreasing to US$1.3 billion in 2025. The decline in 2025 suggests a narrowing gap between net income and cash flow.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio was -14.45% in 2022, consistent with the negative accruals observed for that year. The ratio experienced a dramatic increase in 2023, reaching 62.03%. This substantial rise warrants further investigation, as it could indicate aggressive revenue recognition or delayed expense recognition. The ratio decreased to 43.34% in 2024, representing a continued, though lessened, divergence between earnings and cash flow. Finally, the ratio decreased significantly to 11.22% in 2025, suggesting a move towards greater alignment between reported earnings and cash flows. The overall trend indicates a decreasing reliance on accruals relative to operating assets as the period progresses.
The considerable fluctuations in both aggregate accruals and the accruals ratio suggest potential areas for further scrutiny. While growth in net operating assets is positive, the variability in accruals could signal changes in accounting practices or underlying business operations. The high accruals ratio in 2023 and 2024, in particular, may warrant a deeper dive into the components of accruals to assess the quality of earnings.