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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- Common-Size Balance Sheet: Assets
- Analysis of Solvency Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Debt to Equity since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Amphenol Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of long-term debt | ||||||
| Less: Long-term debt, less 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 | ||||||
| Apple Inc. | ||||||
| Arista Networks Inc. | ||||||
| Cisco Systems Inc. | ||||||
| Dell Technologies Inc. | ||||||
| Super Micro Computer Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Technology Hardware & Equipment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
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.
The data reveals notable fluctuations in the financial reporting quality indicators over the four-year period from 2020 to 2023. The net operating assets exhibit a consistent upward trend, increasing steadily each year. This growth suggests an expansion in the company’s investment in its core operational assets.
In contrast, the balance-sheet-based aggregate accruals display significant variability over the same timeframe. After a moderate value in 2020, there is a sharp increase in 2021, followed by a substantial decline in 2022, and then an intermediate rise again in 2023. This volatility in accruals could imply changing accounting practices or shifts in the underlying business conditions affecting earnings quality.
The balance-sheet-based accruals ratio, expressed as a percentage, mirrors the pattern observed in aggregate accruals. Beginning at a relatively low level in 2020, the ratio spikes dramatically in 2021 before dropping back to a low in 2022 and rising once more in 2023. Such variation in this ratio indicates fluctuations in the proportion of accruals relative to net operating assets, which can be indicative of changes in earnings management or the timing of expense recognition.
- Net Operating Assets
- Show a clear upward trajectory from approximately 7.58 billion to over 11 billion US dollars, signifying growth in operational asset base.
- Balance-sheet-based Aggregate Accruals
- Highly variable across years, with a peak in 2021, suggesting potential volatility in non-cash components of earnings.
- Balance-sheet-based Accruals Ratio
- Demonstrates pronounced swings, rising sharply in 2021 and decreasing significantly in 2022, which could reflect shifts in financial reporting choices or operational factors affecting accruals.
Overall, while the company’s net operating assets have steadily increased, the accrual-related measures show considerable fluctuations, which may warrant further investigation into the underlying causes of this variability to assess its implications for the quality of financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Amphenol Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Amphenol Corporation | ||||||
| Less: Net cash provided by 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 | ||||||
| Apple Inc. | ||||||
| Arista Networks Inc. | ||||||
| Cisco Systems Inc. | ||||||
| Dell Technologies Inc. | ||||||
| Super Micro Computer Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Technology Hardware & Equipment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
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.
The financial reporting quality measures for Amphenol Corp. over the period from the end of 2020 through the end of 2023 reveal several notable trends. Net operating assets demonstrate a steady increase throughout the four years, indicating growth in the company's asset base utilized for operations. Specifically, net operating assets rose from approximately $7.58 billion in 2020 to $11.10 billion in 2023, reflecting a consistent expansion each year.
Regarding cash-flow-statement-based aggregate accruals, there is significant variability observed. Initially, in 2020, accruals were negative at around -$55.1 million, indicating a potential release of accrued liabilities or lower accrual-based accounting earnings relative to cash flows. However, in 2021, there was a notable surge to approximately $2.67 billion, which suggests a substantial increase in accruals potentially linked to changes in revenue recognition, expense timing, or other accounting estimates. This figure then decreased considerably in subsequent years to around $458.8 million in 2022 and rose again to $793 million in 2023, signaling fluctuations in the accrual component of earnings that may merit further analysis.
The cash-flow-statement-based accruals ratio exhibits a similar pattern of volatility. It began at a negative ratio of about -0.74% in 2020, shifted dramatically to a high of 30.5% in 2021, before declining to 4.55% in 2022 and then increasing moderately to 7.43% in 2023. The spike in 2021 suggests a period where accruals made a very substantial contribution relative to cash flows from operations, potentially impacting earnings quality. The subsequent years show a return to more moderate accrual ratios, albeit still elevated compared to 2020, highlighting ongoing variability in the composition of earnings.
Overall, the data reflect a trend of increasing net operating assets coupled with marked fluctuations in accrual-based measures. These fluctuations in accruals and the accruals ratio could have implications for the interpretation of earnings quality and may warrant attention for their potential impact on cash flow sustainability and earnings reliability.