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
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 | 38,570) | 36,954) | 39,523) | 47,414) | 49,271) | |
| Less: Cash and cash equivalents | 3,686) | 4,030) | 4,544) | 4,945) | 2,117) | |
| Operating assets | 34,884) | 32,924) | 34,979) | 42,469) | 47,154) | |
| Operating Liabilities | ||||||
| Total liabilities | 42,060) | 40,877) | 41,129) | 44,449) | 42,914) | |
| Less: Current portion of long-term debt | 1,121) | 1,556) | 1,105) | 1,500) | 1,000) | |
| Less: Long-term debt, excluding current portion | 25,112) | 25,124) | 26,939) | 27,971) | 27,042) | |
| Operating liabilities | 15,827) | 14,197) | 13,085) | 14,978) | 14,872) | |
| Net operating assets1 | 19,057) | 18,727) | 21,894) | 27,491) | 32,282) | |
| Balance-sheet-based aggregate accruals2 | 330) | (3,167) | (5,597) | (4,791) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 1.75% | -15.59% | -22.67% | -16.03% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Coca-Cola Co. | 4.65% | -3.05% | — | — | — | |
| Mondelēz International Inc. | -4.19% | 7.90% | — | — | — | |
| PepsiCo Inc. | 3.36% | 0.98% | — | — | — | |
| Philip Morris International Inc. | 5.21% | 75.98% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | 2.19% | 11.97% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | 2.58% | 7.61% | 200.00% | — | — | |
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
= 34,884 – 15,827 = 19,057
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 19,057 – 18,727 = 330
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 330 ÷ [(19,057 + 18,727) ÷ 2] = 1.75%
4 Click competitor name to see calculations.
The analysis of financial reporting quality from 2020 to 2023 reveals a significant transition in the relationship between net operating assets and aggregate accruals. Net operating assets experienced a sustained decline from 27,491 million USD in 2020 to 18,727 million USD in 2022, before stabilizing with a slight increase to 19,057 million USD in 2023.
- Balance-sheet-based aggregate accruals
- A volatility pattern is observed in aggregate accruals, which remained negative from 2020 through 2022. The most pronounced negative value occurred in 2021 at -5,597 million USD. However, a sharp reversal is evident by December 31, 2023, when the figure shifted to a positive 330 million USD.
- Balance-sheet-based accruals ratio
- The accruals ratio mirrors this shift, moving from -16.03% in 2020 to a trough of -22.67% in 2021. A consistent upward trend followed, with the ratio improving to -15.59% in 2022 and finally crossing into positive territory at 1.75% in 2023.
The progression from deeply negative accrual ratios to a positive value indicates a fundamental change in the composition of earnings relative to cash flows. The period between 2020 and 2022 was characterized by negative accruals, a condition often associated with high earnings quality where cash flows exceed accrual-based income. The shift to a positive ratio in 2023 marks a departure from this trend, suggesting that accruals have begun to contribute positively to the growth of net operating assets.
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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 | 8,130) | 5,764) | 2,475) | 4,467) | (1,293) | |
| Less: Net cash provided by operating activities | 9,287) | 8,256) | 8,405) | 8,385) | 7,837) | |
| Less: Net cash (used in) provided by investing activities | (1,283) | 782) | 1,212) | (143) | (2,398) | |
| Cash-flow-statement-based aggregate accruals | 126) | (3,274) | (7,142) | (3,775) | (6,732) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 0.67% | -16.12% | -28.92% | -12.63% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Coca-Cola Co. | 4.51% | -1.32% | — | — | — | |
| Mondelēz International Inc. | -5.47% | 8.02% | — | — | — | |
| PepsiCo Inc. | 2.17% | 1.04% | — | — | — | |
| Philip Morris International Inc. | 6.40% | 57.17% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | 1.72% | 9.94% | -1.37% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | 2.27% | 4.81% | -9.79% | — | — | |
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 × 126 ÷ [(19,057 + 18,727) ÷ 2] = 0.67%
2 Click competitor name to see calculations.
An analysis of the aggregate accruals from 2020 to 2023 reveals a significant transition in financial reporting quality and cash flow dynamics. For the majority of the analyzed period, the company exhibited negative accruals, indicating that cash flow from operations consistently exceeded accrual-based earnings, a characteristic typically associated with conservative accounting practices and high earnings quality.
- Net Operating Assets Trend
- A consistent decline in net operating assets was observed from 2020 through 2022, decreasing from 27,491 million to 18,727 million. This downward trajectory stabilized in 2023, with a marginal increase to 19,057 million.
- Aggregate Accruals Performance
- Cash-flow-statement-based aggregate accruals remained deeply negative between 2020 and 2022, reaching a peak deficit of 7,142 million in 2021. A notable pivot occurred in 2023, when accruals shifted to a positive value of 126 million, marking a departure from the previous three-year trend of cash flows exceeding reported earnings.
- Accruals Ratio Analysis
- The cash-flow-statement-based accruals ratio mirrored the aggregate accruals trend, starting at -12.63% in 2020 and expanding to -28.92% in 2021. The ratio moderated to -16.12% in 2022 before shifting to 0.67% in 2023. This progression indicates a movement from highly conservative earnings reporting toward a near-neutral alignment between accrual accounting and cash generation.
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