Stock Analysis on Net

Caterpillar Inc. (NYSE:CAT)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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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Balance-Sheet-Based Accruals Ratio

Caterpillar Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Operating Assets
Total assets
Less: Cash and cash equivalents
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term borrowings
Less: Long-term debt due within one year
Less: Long-term debt due after one year
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Boeing Co.
Eaton Corp. plc
GE Aerospace
Honeywell International Inc.
Lockheed Martin Corp.
RTX Corp.
Balance-Sheet-Based Accruals Ratio, Sector
Capital Goods
Balance-Sheet-Based Accruals Ratio, Industry
Industrials

Based on: 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), 10-K (reporting date: 2020-12-31).

1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= =

2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= =

3 2024 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
Over the four-year period, net operating assets showed a general upward trend. Starting at 45,051 million USD at the end of 2021, this figure increased modestly to 45,880 million USD in 2022, then experienced a more significant rise to 50,403 million USD by the end of 2023. The growth continued but at a slower pace, reaching 51,014 million USD in 2024. The overall increase suggests expanding operational capacity or investment in operating assets.
Balance-sheet-based Aggregate Accruals
The aggregate accruals exhibited notable volatility across the periods. In 2021, accruals stood at 1,862 million USD before declining sharply to 829 million USD in 2022. However, in 2023, accruals surged dramatically to 4,523 million USD, representing a significant spike. This sharp increase was followed by a pronounced reduction to 611 million USD in 2024. The large fluctuation in accruals implies variable adjustments or timing differences in recognizing revenues and expenses.
Balance-sheet-based Accruals Ratio
The accruals ratio mirrored the pattern of aggregate accruals, with its magnitude shifting considerably over the years. Beginning at 4.22% in 2021, it dropped to 1.82% in 2022, then escalated sharply to 9.4% in 2023, the highest in the reported period. This high point was followed by a steep decline to 1.2% in 2024, the lowest ratio recorded. The ratio's volatility indicates fluctuations in earnings quality and the extent of accrual-based earnings adjustments during these years.

Cash-Flow-Statement-Based Accruals Ratio

Caterpillar Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Profit attributable to common stockholders
Less: Net cash provided by operating activities
Less: Net cash used for investing activities
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Boeing Co.
Eaton Corp. plc
GE Aerospace
Honeywell International Inc.
Lockheed Martin Corp.
RTX Corp.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Capital Goods
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials

Based on: 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), 10-K (reporting date: 2020-12-31).

1 2024 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
The net operating assets exhibited a steady upward trend over the four-year period. Starting at 45,051 million US dollars at the end of 2021, this figure increased to 45,880 million in 2022, followed by a more pronounced rise to 50,403 million in 2023, and a further increment to 51,014 million in 2024. The progression indicates a consistent expansion in the company's net operating asset base, reflecting potential growth in operational capacity or asset acquisition.
Cash-flow-statement-based Aggregate Accruals
The aggregate accruals demonstrated considerable variability throughout the period. Initially, the accruals were recorded at 2,375 million US dollars in 2021, then declined significantly to 1,480 million in 2022. The figure surged to 3,321 million in 2023, indicating an increased level of accruals in that year, before retreating sharply to 1,210 million in 2024. This volatility suggests fluctuations in the timing differences between reported earnings and actual cash flows, potentially impacting earnings quality.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, reflecting the proportion of accruals relative to net operating assets, mirrored the fluctuations observed in aggregate accruals. It started at 5.38% in 2021, decreased to 3.26% in 2022, rose markedly to 6.9% in 2023, and then declined to a low of 2.39% in 2024. These variations suggest inconsistent use of accruals from year to year, with the highest ratio occurring in 2023, potentially signaling a year with reduced earnings quality due to increased accruals compared to other periods.