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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Chevron Corp. pages available for free this week:
- Balance Sheet: Assets
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Price to Sales (P/S) since 2005
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Balance-Sheet-Based Accruals Ratio
Chevron Corp., 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: Time deposits | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt | ||||||
| Less: Long-term debt, excluding debt due within 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 | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
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.
The balance-sheet-based accruals ratio exhibits significant fluctuations over the observed period. Initially, the ratio is minimal, but increases substantially in subsequent years, followed by a negative value and then a dramatic rise. This pattern warrants further investigation into the underlying components driving these changes.
- Net Operating Assets
- Net operating assets demonstrate a generally increasing trend, with a slight decrease between 2023 and 2024. The most substantial increase occurs between 2024 and 2025, rising to US$226,637 million. This growth in net operating assets provides context for the observed changes in accruals.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals begin at a low value of US$46 million in 2022. A substantial increase is observed in 2023, reaching US$8,862 million. This is followed by a negative accrual of US$3,629 million in 2024, indicating a reversal of prior accruals. The largest accrual value, US$55,724 million, is recorded in 2025. The volatility in aggregate accruals suggests potential shifts in revenue recognition, expense timing, or working capital management practices.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio is 0.03% in 2022, indicating a very small relationship between accruals and net operating assets. In 2023, the ratio increases significantly to 5.21%, suggesting a more substantial reliance on accruals relative to operating assets. The ratio then becomes negative in 2024 (-2.10%), implying that deferrals exceeded recognitions of revenue or expenses. Finally, the ratio surges to 28.03% in 2025, representing a considerable increase in accruals relative to net operating assets. This large positive value in 2025, coupled with the prior negative value, raises questions about the sustainability of earnings and the potential for earnings manipulation. The significant fluctuations in the accruals ratio suggest a need for detailed scrutiny of the company’s accounting policies and practices.
The substantial changes in both aggregate accruals and the accruals ratio, particularly the shift from negative to positive values and the overall magnitude of the changes, suggest a need for further investigation into the underlying drivers. A deeper analysis of the components of accruals, such as accounts receivable, inventory, and accounts payable, is recommended to understand the reasons for these fluctuations and assess the quality of reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
Chevron Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Chevron Corporation | ||||||
| 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 | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
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.
The analysis reveals fluctuations in aggregate accruals and the corresponding accruals ratio over a four-year period. Net operating assets exhibited an overall increasing trend, while cash-flow-statement-based aggregate accruals and the accruals ratio demonstrated considerable volatility.
- Net Operating Assets
- Net operating assets increased from US$165,680 million in 2022 to US$174,542 million in 2023. A slight decrease was observed in 2024, falling to US$170,913 million, before a substantial increase to US$226,637 million in 2025. This indicates a general expansion of the company’s operational footprint, with a significant surge in the most recent year.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals were negative in 2022, at -US$2,029 million, suggesting that cash flows exceeded reported earnings. A positive value of US$992 million was recorded in 2023, indicating accruals contributed to earnings. However, accruals turned negative again in 2024 and 2025, reaching -US$4,895 million and -US$5,729 million respectively. This suggests a growing divergence between cash flows and reported earnings in the latter two years.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It was -1.22% in 2022, rising to 0.58% in 2023. Subsequently, the ratio became negative, decreasing to -2.83% in 2024 and further to -2.88% in 2025. The increasing negative values suggest a growing proportion of reported earnings are attributable to accruals rather than actual cash flows, potentially warranting further investigation into the quality of earnings.
The shift from positive to negative accruals and the corresponding changes in the accruals ratio suggest a potential alteration in the company’s earnings management practices or a change in the underlying economic factors affecting cash flow generation. The substantial increase in net operating assets in 2025, coupled with continued negative accruals, may indicate significant investments or acquisitions funded by non-cash sources.