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
Cigna Group, balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 155,881) | 152,761) | 143,932) | 154,889) | 155,451) | |
| Less: Cash and cash equivalents | 7,550) | 7,822) | 5,924) | 5,081) | 10,182) | |
| Less: Investments | 665) | 925) | 905) | 920) | 1,331) | |
| Operating assets | 147,666) | 144,014) | 137,103) | 148,888) | 143,938) | |
| Operating Liabilities | ||||||
| Total liabilities | 114,638) | 106,410) | 98,981) | 107,705) | 105,065) | |
| Less: Short-term debt | 3,035) | 2,775) | 2,993) | 2,545) | 3,374) | |
| Less: Long-term debt | 28,937) | 28,155) | 28,100) | 31,125) | 29,545) | |
| Operating liabilities | 82,666) | 75,480) | 67,888) | 74,035) | 72,146) | |
| Net operating assets1 | 65,000) | 68,534) | 69,215) | 74,853) | 71,792) | |
| Balance-sheet-based aggregate accruals2 | (3,534) | (681) | (5,638) | 3,061) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -5.29% | -0.99% | -7.83% | 4.17% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Abbott Laboratories | 15.62% | 6.06% | -0.73% | -1.76% | — | |
| Elevance Health Inc. | 29.70% | 7.14% | 0.32% | 14.93% | — | |
| Intuitive Surgical Inc. | 41.97% | 15.55% | -10.21% | 50.02% | — | |
| Medtronic PLC | -0.93% | 2.69% | -1.37% | 3.72% | — | |
| UnitedHealth Group Inc. | 16.02% | 13.41% | 17.32% | 4.32% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | 14.53% | 8.90% | 6.46% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 5.49% | 7.80% | 5.29% | 200.00% | — | |
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
= 147,666 – 82,666 = 65,000
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 65,000 – 68,534 = -3,534
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -3,534 ÷ [(65,000 + 68,534) ÷ 2] = -5.29%
4 Click competitor name to see calculations.
- Net operating assets
- The net operating assets demonstrate a consistent declining trend over the four-year period. Starting at 74,853 million US dollars in 2021, the figure steadily decreases each year, reaching 65,000 million US dollars by 2024. This suggests a reduction in the company’s investment in operating assets or possibly the sale or depreciation of such assets.
- Balance-sheet-based aggregate accruals
- The aggregate accruals show notable volatility and a significant negative shift after 2021. In 2021, the accruals were positive at 3,061 million US dollars, followed by a substantial drop to -5,638 million US dollars in 2022. Although the values remain negative in 2023 and 2024 (-681 and -3,534 million US dollars respectively), there is some fluctuation in magnitude. This could indicate changes in the company's accounting estimates, timing differences in revenue and expense recognition, or adjustments in reserves.
- Balance-sheet-based accruals ratio
- The accruals ratio aligns with the pattern observed in aggregate accruals, exhibiting a sharp transition from a positive 4.17% in 2021 to a negative -7.83% in 2022. This ratio remains negative in subsequent years but shows a decrease in the absolute value to -0.99% in 2023 and then increases in negativity again to -5.29% in 2024. These fluctuations signify changes in the proportion of accruals relative to net operating assets, further reflecting variability in earnings quality and accounting practices over time.
- Overall insights
- The overall data indicates a reduction in net operating assets combined with considerable instability in accrual measures. The shift to negative aggregate accruals and accruals ratio values from 2022 onward suggests possible conservatism or adjustments in accounting policies, impacting the quality of reported earnings. The inconsistent trend of accruals ratios points toward fluctuations in earnings management or operational performance across the years analyzed.
Cash-Flow-Statement-Based Accruals Ratio
Cigna Group, cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Shareholders’ net income | 3,434) | 5,164) | 6,668) | 5,365) | 8,458) | |
| Less: Net cash provided by operating activities | 10,363) | 11,813) | 8,656) | 7,191) | 10,350) | |
| Less: Net cash (used in) provided by investing activities | (2,102) | (5,174) | 3,098) | (3,611) | 2,976) | |
| Cash-flow-statement-based aggregate accruals | (4,827) | (1,475) | (5,086) | 1,785) | (4,868) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -7.23% | -2.14% | -7.06% | 2.43% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Abbott Laboratories | 14.32% | 3.55% | -2.08% | -3.29% | — | |
| Elevance Health Inc. | 16.15% | 12.87% | 8.35% | 30.34% | — | |
| Intuitive Surgical Inc. | 30.74% | 4.54% | -20.88% | 33.51% | — | |
| Medtronic PLC | -1.10% | 1.80% | -0.97% | 0.35% | — | |
| UnitedHealth Group Inc. | 7.71% | 7.40% | 21.73% | 5.77% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | 8.55% | 5.82% | 8.70% | 11.34% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 4.00% | 8.59% | 4.25% | 14.62% | — | |
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 × -4,827 ÷ [(65,000 + 68,534) ÷ 2] = -7.23%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a declining trend over the four-year period. Starting at 74,853 million US dollars in 2021, the figure decreases progressively to 69,215 million in 2022, then slightly declines to 68,534 million in 2023, and further reduces to 65,000 million in 2024. This downward movement suggests a contraction in the company's operating asset base annually.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals reflect significant variability and predominantly negative values in recent years. It begins with a positive value of 1,785 million US dollars in 2021, followed by a steep decline to -5,086 million in 2022. The value partially recovers to -1,475 million in 2023 but returns to a highly negative figure of -4,827 million in 2024. This pattern indicates fluctuations in the accruals with a tendency toward negative cash-flow-based adjustments in the latter years, which may impact earnings quality.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio reveals a similar trend of increasing negativity after an initial positive point. The ratio starts at 2.43% in 2021, then shifts dramatically to -7.06% in 2022. It improves somewhat to -2.14% in 2023 but declines again to -7.23% in 2024. Such negative ratios indicate that accruals consistently reduce cash flow relative to net operating assets in recent years, potentially signaling less reliable earnings and increased risk of earnings management.