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
AbbVie 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 | 133,960) | 135,161) | 134,711) | 138,805) | 146,529) | |
| Less: Cash and equivalents | 5,229) | 5,524) | 12,814) | 9,201) | 9,746) | |
| Less: Short-term investments | 28) | 31) | 2) | 28) | 84) | |
| Operating assets | 128,703) | 129,606) | 121,895) | 129,576) | 136,699) | |
| Operating Liabilities | ||||||
| Total liabilities | 137,188) | 131,797) | 124,314) | 121,518) | 131,093) | |
| Less: Short-term borrowings | 2,499) | —) | —) | 1) | 14) | |
| Less: Current portion of long-term debt and finance lease obligations | 6,056) | 6,804) | 7,191) | 4,135) | 12,481) | |
| Less: Long-term debt and finance lease obligations, excluding current portion | 58,941) | 60,340) | 52,194) | 59,135) | 64,189) | |
| Operating liabilities | 69,692) | 64,653) | 64,929) | 58,247) | 54,409) | |
| Net operating assets1 | 59,011) | 64,953) | 56,966) | 71,329) | 82,290) | |
| Balance-sheet-based aggregate accruals2 | (5,942) | 7,987) | (14,363) | (10,961) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -9.59% | 13.10% | -22.39% | -14.27% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Amgen Inc. | 0.24% | -10.36% | 57.08% | 4.07% | — | |
| Bristol-Myers Squibb Co. | -4.13% | -3.21% | -7.12% | -3.86% | — | |
| Danaher Corp. | 4.42% | -3.94% | 3.48% | -1.55% | — | |
| Eli Lilly & Co. | 32.18% | 29.20% | 28.59% | 11.56% | — | |
| Gilead Sciences Inc. | 10.43% | -11.79% | 1.04% | -2.92% | — | |
| Johnson & Johnson | 26.71% | 10.61% | -21.13% | 19.84% | — | |
| Merck & Co. Inc. | 22.44% | 6.20% | 3.16% | 0.46% | — | |
| Pfizer Inc. | 4.15% | -11.48% | 30.66% | 24.95% | — | |
| Regeneron Pharmaceuticals Inc. | 9.55% | 25.51% | 1.17% | 11.07% | — | |
| Thermo Fisher Scientific Inc. | 9.41% | 2.28% | 4.96% | -1.78% | — | |
| Vertex Pharmaceuticals Inc. | 15.57% | 42.13% | 61.24% | 14.07% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 10.18% | 1.65% | 7.35% | 4.85% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 7.67% | 5.49% | 7.79% | 5.30% | — | |
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
= 128,703 – 69,692 = 59,011
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 59,011 – 64,953 = -5,942
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -5,942 ÷ [(59,011 + 64,953) ÷ 2] = -9.59%
4 Click competitor name to see calculations.
The balance-sheet-based accruals ratio exhibits considerable fluctuation over the observed period. Net operating assets decreased from 2022 to 2023, then increased in 2024 before declining again in 2025. Aggregate accruals demonstrate a distinct pattern of negative values initially, followed by a positive value and then a return to negative values.
- Net Operating Assets
- Net operating assets experienced a substantial decrease of approximately 20.4% between 2022 and 2023, falling from US$71,329 million to US$56,966 million. A recovery was noted in 2024, with net operating assets increasing to US$64,953 million. However, this increase was not sustained, as net operating assets decreased again in 2025 to US$59,011 million.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were negative in 2022 and 2023, registering US$-10,961 million and US$-14,363 million respectively. This indicates that cash flows from operations were not fully reflected in reported earnings during these periods. A significant shift occurred in 2024, with aggregate accruals turning positive at US$7,987 million. However, accruals became negative again in 2025, amounting to US$-5,942 million.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio was -14.27% in 2022, worsening to -22.39% in 2023. This suggests an increasing reliance on accruals to support reported earnings. The ratio became positive in 2024, reaching 13.10%, indicating that accruals were contributing positively to earnings. In 2025, the ratio reverted to a negative value of -9.59%, suggesting a renewed reliance on accruals to offset cash flows. The volatility in this ratio warrants further investigation into the underlying drivers of accruals.
The observed pattern of negative accruals followed by positive accruals, and then again negative accruals, suggests potential cyclicality or management of reported earnings. The magnitude of the accruals ratio in 2023 is particularly noteworthy, and the subsequent reversal in 2024 requires further scrutiny to determine its sustainability.
AI Ask an analyst for more
Cash-Flow-Statement-Based Accruals Ratio
AbbVie 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 earnings attributable to AbbVie Inc. | 4,226) | 4,278) | 4,863) | 11,836) | 11,542) | |
| Less: Cash flows from operating activities | 19,030) | 18,806) | 22,839) | 24,943) | 22,777) | |
| Less: Cash flows from investing activities | (6,643) | (20,820) | (2,009) | (623) | (2,344) | |
| Cash-flow-statement-based aggregate accruals | (8,161) | 6,292) | (15,967) | (12,484) | (8,891) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -13.17% | 10.32% | -24.89% | -16.25% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Amgen Inc. | -0.56% | -11.16% | 52.47% | 8.81% | — | |
| Bristol-Myers Squibb Co. | -5.49% | -4.97% | -5.99% | -9.10% | — | |
| Danaher Corp. | -2.47% | -1.25% | 8.20% | 1.44% | — | |
| Eli Lilly & Co. | 27.81% | 28.42% | 28.01% | 10.27% | — | |
| Gilead Sciences Inc. | 8.65% | -18.05% | -0.19% | -4.95% | — | |
| Johnson & Johnson | 26.80% | 10.58% | 13.66% | 10.78% | — | |
| Merck & Co. Inc. | 19.75% | 5.00% | 2.23% | 0.61% | — | |
| Pfizer Inc. | -1.91% | -5.24% | 19.96% | 18.46% | — | |
| Regeneron Pharmaceuticals Inc. | 0.64% | 12.04% | 14.35% | 18.61% | — | |
| Thermo Fisher Scientific Inc. | 3.71% | 4.71% | 3.80% | -0.06% | — | |
| Vertex Pharmaceuticals Inc. | 11.22% | 43.34% | 62.03% | -14.45% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 6.42% | 2.07% | 9.68% | 2.52% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 4.65% | 4.00% | 8.59% | 4.25% | — | |
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 × -8,161 ÷ [(59,011 + 64,953) ÷ 2] = -13.17%
2 Click competitor name to see calculations.
The analysis reveals a fluctuating pattern in aggregate accruals and the corresponding accruals ratio over the four-year period. Net operating assets decreased from 2022 to 2023, then increased in 2024 before declining again in 2025.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals, as determined from the cash flow statement, exhibited a negative value throughout the period, indicating a net reduction of operating assets financed by current liabilities or a decrease in net operating assets financed by cash flows. The magnitude of these negative accruals increased from US$12,484 million in 2022 to US$15,967 million in 2023. A significant shift occurred in 2024, with accruals turning positive at US$6,292 million, suggesting an increase in net operating assets financed by cash flows. However, accruals reverted to negative territory in 2025, reaching US$8,161 million.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrored the trend in aggregate accruals. It was -16.25% in 2022 and decreased to -24.89% in 2023, indicating a growing proportion of earnings not supported by cash flow from operations. The ratio became positive in 2024, reaching 10.32%, which suggests a greater proportion of earnings were supported by cash flow. The ratio then turned negative again in 2025, declining to -13.17%, indicating a return to a situation where earnings were less supported by cash flow.
- Overall Trend
- The observed pattern suggests a cyclical relationship between accruals and cash flows. The initial decline in the accruals ratio from 2022 to 2023 could warrant further investigation to understand the underlying drivers of earnings relative to cash flow. The positive shift in 2024, followed by a return to negative accruals in 2025, indicates potential volatility in the relationship between reported earnings and operating cash flows. Continued monitoring of these trends is recommended.
AI Ask an analyst for more