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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Altria Group Inc. pages available for free this week:
- Income Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
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Balance-Sheet-Based Accruals Ratio
Altria Group Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of long-term debt | ||||||
| Less: Long-term debt, excluding 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 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= – =
3 2023 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 exhibited a consistent decline from 27,491 million US dollars at the end of 2020 to 18,727 million US dollars by the end of 2022. This downward trend slightly reversed in 2023, increasing marginally to 19,057 million US dollars. Overall, the reduction suggests a contraction in the company's operating asset base over the observed period, with a modest recovery in the final year.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals were negative throughout 2020 to 2022, decreasing from -4,791 million US dollars in 2020 to -5,597 million US dollars in 2021, followed by a significant reduction in magnitude to -3,167 million US dollars in 2022. Notably, in 2023, the value shifted to a positive 330 million US dollars, indicating a reversal from prior negative accruals and suggesting improved earnings quality or changes in working capital management.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, indicating the proportion of accruals to net operating assets, aligned with the aggregate accrual values, being negative and worsening from -16.03% in 2020 to -22.67% in 2021. It then improved substantially to -15.59% in 2022 and turned positive at 1.75% in 2023. This positive ratio in 2023 indicates a potential stabilization or improvement in the quality of earnings compared to earlier years, as higher or positive accrual ratios generally suggest lower earnings quality risk.
Cash-Flow-Statement-Based Accruals Ratio
Altria Group Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net earnings (losses) attributable to Altria | ||||||
| Less: Net cash provided by 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 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 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
- There is a noticeable downward trend in net operating assets over the four-year period. The value decreases from 27,491 million US dollars in 2020 to 19,057 million US dollars in 2023, with the largest decline occurring between 2020 and 2022. In 2023, the net operating assets appear to stabilize with a slight increase compared to 2022.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show significant variability over the period. Starting at negative 3,775 million US dollars in 2020, they reach a more negative peak of negative 7,142 million in 2021, then improve to negative 3,274 million in 2022. In 2023, the value becomes positive at 126 million US dollars, indicating a reversal from previous negative accruals.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio similarly reflects the changes in aggregate accruals, with a negative ratio in 2020 at approximately -12.63%, deepening to nearly -28.92% in 2021. This ratio then recovers to negative 16.12% in 2022 and turns positive at 0.67% in 2023. The shift from a substantial negative ratio to a slightly positive one suggests improving earnings quality or a change in accounting practices affecting accruals.