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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Bristol-Myers Squibb Co. pages available for free this week:
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Return on Assets (ROA) since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Bristol-Myers Squibb Co., 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 | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Marketable debt securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt obligations | ||||||
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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 exhibited a consistent decline over the four-year period. Simultaneously, balance-sheet-based aggregate accruals demonstrated volatility, while the balance-sheet-based accruals ratio revealed a concerning trend. The following details provide a more granular examination of these observations.
- Net Operating Assets
- Net operating assets decreased from US$61,185 million in 2022 to US$52,943 million in 2025. This represents a cumulative reduction of approximately 13.3% over the observed timeframe. The largest year-over-year decrease occurred between 2022 and 2023, with a reduction of US$4,208 million.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were negative throughout the period, indicating a net reduction in operating assets financed by accruals. The accruals moved from -US$2,408 million in 2022 to -US$4,208 million in 2023, a substantial increase in negative accruals. Accruals then became less negative in 2024 (-US$1,799 million) before slightly increasing in negativity again in 2025 (-US$2,235 million). This fluctuation suggests potential shifts in the timing of revenue and expense recognition.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio, expressed as a percentage, generally worsened over the period. It moved from -3.86% in 2022 to -7.12% in 2023, representing a significant deterioration. While the ratio improved to -3.21% in 2024, it subsequently declined again to -4.13% in 2025. A consistently negative accruals ratio suggests that operating performance is not fully reflected in net operating assets, and the increasing negativity, particularly in 2023 and 2025, warrants further investigation. The ratio’s movement indicates a growing reliance on accruals to manage reported earnings relative to the size of the balance sheet.
The combined trends suggest a potential disconnect between reported earnings and underlying cash flows. The declining net operating assets, coupled with the increasingly negative accruals ratio, could indicate aggressive accounting practices or unsustainable earnings management. Further scrutiny of the components of accruals is recommended to determine the specific drivers of these trends and assess the quality of earnings.
Cash-Flow-Statement-Based Accruals Ratio
Bristol-Myers Squibb Co., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net earnings (loss) attributable to BMS | ||||||
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
Net operating assets decreased consistently over the four-year period, while cash-flow-statement-based aggregate accruals and the corresponding accruals ratio exhibited fluctuations. A review of these trends suggests potential shifts in the relationship between operating performance and reported earnings.
- Net Operating Assets
- Net operating assets experienced a steady decline from US$61,185 million in 2022 to US$52,943 million in 2025. This represents a cumulative decrease of approximately 13.4% over the period. The rate of decline appears relatively consistent year-over-year.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals were negative throughout the observed period, indicating that cash flows from operations were generally less than reported earnings. The absolute value of accruals decreased from US$5,677 million in 2022 to US$2,786 million in 2024, suggesting a diminishing difference between cash flows and reported earnings. However, accruals increased slightly to US$2,970 million in 2025.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, calculated as aggregate accruals divided by net operating assets, followed a generally decreasing trend from -9.10% in 2022 to -4.97% in 2024. This indicates a lessening reliance on accruals relative to the size of the operating asset base. The ratio increased to -5.49% in 2025, potentially signaling a renewed dependence on accruals to support reported earnings. The negative sign consistently indicates that accruals are reducing cash flow from operations.
The combination of declining net operating assets and fluctuating accruals warrants further investigation. While the initial trend towards decreasing accruals as a percentage of net operating assets might be viewed favorably, the slight increase in the accruals ratio in 2025 could suggest a potential area of concern regarding the quality of earnings. Continued monitoring of these metrics is recommended.