Stock Analysis on Net

Albemarle Corp. (NYSE:ALB)

This company has been moved to the archive! The financial data has not been updated since May 3, 2023.

Financial Reporting Quality: Aggregate Accruals 

Microsoft Excel

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

Albemarle Corp., balance sheet computation of aggregate accruals

US$ in thousands

Microsoft Excel
Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Operating Assets
Total assets 15,456,522 10,974,118 10,450,946 9,860,863 7,581,674
Less: Cash and cash equivalents 1,499,142 439,272 746,724 613,110 555,320
Operating assets 13,957,380 10,534,846 9,704,222 9,247,753 7,026,354
Operating Liabilities
Total liabilities 7,265,675 5,168,511 5,982,352 5,767,283 3,822,566
Less: Current portion of long-term debt 2,128 389,920 804,677 187,336 307,294
Less: Long-term debt, excluding current portion 3,214,972 2,004,319 2,767,381 2,862,921 1,397,916
Operating liabilities 4,048,575 2,774,272 2,410,294 2,717,026 2,117,356
 
Net operating assets1 9,908,805 7,760,574 7,293,928 6,530,727 4,908,998
Balance-sheet-based aggregate accruals2 2,148,231 466,646 763,201 1,621,729
Financial Ratio
Balance-sheet-based accruals ratio3 24.32% 6.20% 11.04% 28.35%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Linde plc -5.37% -8.63%
Sherwin-Williams Co. 12.51% 1.78%
Balance-Sheet-Based Accruals Ratio, Sector
Chemicals -2.04% -6.91% 200.00%
Balance-Sheet-Based Accruals Ratio, Industry
Materials 1.53% -5.48% 200.00%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= 13,957,3804,048,575 = 9,908,805

2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= 9,908,8057,760,574 = 2,148,231

3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,148,231 ÷ [(9,908,805 + 7,760,574) ÷ 2] = 24.32%

4 Click competitor name to see calculations.


The analysis of the financial reporting quality measures over the four-year period reveals the following patterns and trends:

Net Operating Assets
There is a consistent upward trend in net operating assets from 2019 through 2022. The value increased from approximately 6.53 billion US dollars in 2019 to about 9.91 billion US dollars in 2022. This represents a notable expansion of approximately 52% over the four-year span, indicating growth in asset base used for operations.
Balance-sheet-based Aggregate Accruals
The aggregate accruals exhibit a fluctuating pattern. Starting at about 1.62 billion US dollars in 2019, the figure significantly decreased in 2020 and 2021 to 763 million and 467 million respectively. However, in 2022, there is a sharp increase, with accruals rising to approximately 2.15 billion US dollars, the highest in the reported period. This volatility in accruals reflects changes in non-cash components or adjustments that may affect reported earnings quality.
Balance-sheet-based Accruals Ratio
The accruals ratio follows a pattern similar to aggregate accruals. It starts at a high of 28.35% in 2019, markedly drops to 11.04% in 2020 and further declines to 6.2% in 2021, suggesting an improvement in earnings quality due to lower accruals relative to net operating assets. However, there is a considerable increase to 24.32% in 2022, indicating a reversal and potential deterioration in reporting quality or increased earnings management through accruals.

In summary, while net operating assets have grown steadily, the fluctuations in both aggregate accruals and their ratio highlight periods of varying earnings quality, with a marked deterioration in 2022 after improvements in the prior two years. This suggests that despite asset growth, attention should be paid to the increased accruals in the most recent period, which might impact the sustainability and reliability of reported earnings.


Cash-Flow-Statement-Based Accruals Ratio

Albemarle Corp., cash flow statement computation of aggregate accruals

US$ in thousands

Microsoft Excel
Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Net income attributable to Albemarle Corporation 2,689,816 123,672 375,764 533,228 693,562
Less: Net cash provided by operating activities 1,907,849 344,257 798,914 719,374 546,165
Less: Net cash used in investing activities (1,422,649) (666,590) (863,573) (1,663,625) (303,695)
Cash-flow-statement-based aggregate accruals 2,204,616 446,005 440,423 1,477,479 451,092
Financial Ratio
Cash-flow-statement-based accruals ratio1 24.95% 5.93% 6.37% 25.83%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Linde plc -2.93% -4.85%
Sherwin-Williams Co. 13.47% 0.82%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Chemicals 0.12% -3.92% -8.12%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Materials 1.97% -4.42% -8.43%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,204,616 ÷ [(9,908,805 + 7,760,574) ÷ 2] = 24.95%

2 Click competitor name to see calculations.


Net Operating Assets
The net operating assets consistently increased over the four-year period. Starting from approximately 6.53 billion US dollars at the end of 2019, this figure rose to around 7.29 billion in 2020, then to 7.76 billion in 2021, and reached nearly 9.91 billion by the end of 2022. This steady upward trend indicates growth in the company's investment in operating assets.
Cash-flow-statement-based Aggregate Accruals
The aggregate accruals showed significant fluctuations during the observed years. The value decreased sharply from about 1.48 billion US dollars in 2019 to 440 million in 2020 and remained relatively stable in 2021 at approximately 446 million. However, in 2022 there was a substantial increase, with accruals reaching around 2.20 billion, surpassing the 2019 level. This indicates variability in the company's accrual accounting components affecting cash flow.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, expressed as a percentage of net operating assets, followed a similar pattern to aggregate accruals. It declined markedly from 25.83% in 2019 to 6.37% in 2020 and slightly decreased further to 5.93% in 2021. In 2022, the ratio surged back to 24.95%, close to the initial 2019 level. This suggests that accruals as a proportion of operating assets varied considerably, reflecting changes in the quality or composition of earnings relative to cash flows over time.