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
Carnival Corp. & plc, balance sheet computation of aggregate accruals
US$ in millions
| Nov 30, 2023 | Nov 30, 2022 | Nov 30, 2021 | Nov 30, 2020 | Nov 30, 2019 | Nov 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 49,120) | 51,703) | 53,344) | 53,593) | 45,058) | 42,401) | |
| Less: Cash and cash equivalents | 2,415) | 4,029) | 8,939) | 9,513) | 518) | 982) | |
| Less: Restricted cash | 11) | 1,988) | 14) | —) | —) | —) | |
| Less: Short-term investments | —) | —) | 200) | —) | —) | —) | |
| Operating assets | 46,694) | 45,686) | 44,191) | 44,080) | 44,540) | 41,419) | |
| Operating Liabilities | |||||||
| Total liabilities | 42,238) | 44,638) | 41,200) | 33,038) | 19,693) | 17,958) | |
| Less: Short-term borrowings | —) | 200) | 2,790) | 3,084) | 231) | 848) | |
| Less: Current portion of long-term debt | 2,089) | 2,393) | 1,927) | 1,742) | 1,596) | 1,578) | |
| Less: Long-term debt, excluding current portion | 28,483) | 31,953) | 28,509) | 22,130) | 9,675) | 7,897) | |
| Operating liabilities | 11,666) | 10,092) | 7,974) | 6,082) | 8,191) | 7,635) | |
| Net operating assets1 | 35,028) | 35,594) | 36,217) | 37,998) | 36,349) | 33,784) | |
| Balance-sheet-based aggregate accruals2 | (566) | (623) | (1,781) | 1,649) | 2,565) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | -1.60% | -1.74% | -4.80% | 4.44% | 7.31% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Airbnb Inc. | — | — | — | — | — | — | |
| Booking Holdings Inc. | -468.72% | -68.38% | 2.00% | — | — | — | |
| Chipotle Mexican Grill Inc. | 18.41% | 18.43% | 13.32% | — | — | — | |
| DoorDash, Inc. | -21.00% | 112.44% | 126.46% | — | — | — | |
| McDonald’s Corp. | 9.94% | 8.46% | 0.56% | — | — | — | |
| Starbucks Corp. | 13.66% | 10.72% | -25.79% | 45.93% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Services | 3.11% | 4.58% | 1.21% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 12.01% | 13.04% | 12.78% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2023-11-30), 10-K (reporting date: 2022-11-30), 10-K (reporting date: 2021-11-30), 10-K (reporting date: 2020-11-30), 10-K (reporting date: 2019-11-30), 10-K (reporting date: 2018-11-30).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 46,694 – 11,666 = 35,028
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 35,028 – 35,594 = -566
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -566 ÷ [(35,028 + 35,594) ÷ 2] = -1.60%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrate a gradual decline over the examined period, starting at 36,349 million US dollars in 2019 and decreasing to 35,028 million US dollars by 2023. This trend indicates a modest contraction in the company's operational asset base across these years, with the most notable reductions occurring after 2020.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals show a significant fluctuation. In 2019 and 2020, the values were positive at 2,565 and 1,649 million US dollars, respectively, indicating higher accrued assets or lower accrued liabilities. However, beginning in 2021, the accruals turned negative and remained so through 2023, with values of -1,781, -623, and -566 million US dollars respectively. This reversal suggests a shift in the recognition of earnings components, potentially reflecting increased conservatism or changes in operational dynamics.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, expressed as a percentage, aligns with the trends observed in aggregate accruals. It declined from 7.31% in 2019 to 4.44% in 2020, then shifted into negative territory from 2021 onwards, with ratios of -4.8%, -1.74%, and -1.6% through 2023. The movement to negative ratios further underscores a decline in accruals relative to net operating assets, implying the company may be experiencing a reduction in earnings quality or changes in revenue and expense recognition policies.
Cash-Flow-Statement-Based Accruals Ratio
Carnival Corp. & plc, cash flow statement computation of aggregate accruals
US$ in millions
| Nov 30, 2023 | Nov 30, 2022 | Nov 30, 2021 | Nov 30, 2020 | Nov 30, 2019 | Nov 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Net income (loss) | (74) | (6,093) | (9,501) | (10,236) | 2,990) | 3,152) | |
| Less: Net cash provided by (used in) operating activities | 4,281) | (1,670) | (4,109) | (6,301) | 5,475) | 5,549) | |
| Less: Net cash used in investing activities | (2,810) | (4,767) | (3,543) | (3,240) | (5,277) | (3,502) | |
| Cash-flow-statement-based aggregate accruals | (1,545) | 344) | (1,849) | (695) | 2,792) | 1,105) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -4.38% | 0.96% | -4.98% | -1.87% | 7.96% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Airbnb Inc. | — | — | — | — | — | — | |
| Booking Holdings Inc. | -519.27% | -67.03% | -11.13% | — | — | — | |
| Chipotle Mexican Grill Inc. | 24.18% | 30.18% | -9.35% | — | — | — | |
| DoorDash, Inc. | -64.28% | -68.90% | 159.10% | — | — | — | |
| McDonald’s Corp. | 6.77% | 5.35% | 2.17% | — | — | — | |
| Starbucks Corp. | 12.06% | 36.35% | -47.73% | 36.84% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Services | -4.40% | -8.29% | -5.57% | -34.42% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 4.25% | 1.57% | 11.50% | 6.55% | — | — | |
Based on: 10-K (reporting date: 2023-11-30), 10-K (reporting date: 2022-11-30), 10-K (reporting date: 2021-11-30), 10-K (reporting date: 2020-11-30), 10-K (reporting date: 2019-11-30), 10-K (reporting date: 2018-11-30).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,545 ÷ [(35,028 + 35,594) ÷ 2] = -4.38%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets showed a fluctuating yet overall slightly declining trend over the five-year period. Starting at 36,349 million US dollars in 2019, it increased marginally to 37,998 million in 2020. However, from 2021 onwards, the figure steadily decreased to 36,217 million in 2021, then to 35,594 million in 2022, and further to 35,028 million in 2023. This indicates a gradual reduction in the company's net investment in operating assets over recent years.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals experienced significant volatility. In 2019, the value was positive at 2,792 million US dollars, suggesting a substantial amount of accruals added to operating cash flows. In contrast, 2020 and 2021 saw negative values at -695 million and -1,849 million respectively, indicating a reversal or reduction in accruals relative to cash flows. The year 2022 showed a positive accrual of 344 million, reversing the previous negative trend. In 2023, the accruals once again moved to a negative position at -1,545 million. This pattern reflects inconsistent accrual behavior over the period and potential fluctuations in earnings quality.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, mirrored the volatility observed in the aggregate accruals. Beginning at a relatively high positive ratio of 7.96% in 2019, it shifted to negative values of -1.87% in 2020 and further to -4.98% in 2021. The ratio rebounded to a modest positive 0.96% in 2022 before declining again to -4.38% in 2023. These oscillations highlight variability in the proportion of accruals to operating assets, which may indicate changes in earnings management practices or shifts in the timing of revenue and expense recognition.