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% | — | — | |
| Elevance Health Inc. | 29.70% | 7.14% | 0.32% | — | — | |
| Intuitive Surgical Inc. | 41.97% | 15.55% | -10.21% | — | — | |
| Medtronic PLC | -0.93% | 2.69% | -1.37% | — | — | |
| UnitedHealth Group Inc. | 16.02% | 13.41% | 17.32% | — | — | |
| 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% | 7.79% | 5.30% | 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.
The analysis of financial reporting quality between 2021 and 2024 reveals a consistent reduction in the asset base coupled with significant volatility in accrual levels. The overall trend indicates a shift from positive accruals to a predominantly negative accruals environment over the observed period.
- Net Operating Assets Trend
- A steady decline in net operating assets is observed, decreasing from US$ 74,853 million in 2021 to US$ 65,000 million in 2024. This continuous downward trajectory suggests a contraction in the operating asset base throughout the four-year period.
- Aggregate Accruals Performance
- Balance-sheet-based aggregate accruals exhibited substantial fluctuations. After starting at a positive US$ 3,061 million in 2021, the figure shifted sharply to US$ -5,638 million in 2022. A partial moderation occurred in 2023, with accruals rising to US$ -681 million, before declining again to US$ -3,534 million by the end of 2024.
- Accruals Ratio Analysis
- The balance-sheet-based accruals ratio mirrors the volatility of the aggregate accruals, moving from 4.17% in 2021 to -7.83% in 2022, then to -0.99% in 2023, and finally to -5.29% in 2024. The transition to and maintenance of negative ratios from 2022 through 2024 suggests that cash flows have consistently exceeded accrual-based earnings, a pattern often interpreted as an indicator of conservative accounting practices or high earnings quality.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
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% | — | — | |
| Elevance Health Inc. | 16.15% | 12.87% | 8.35% | — | — | |
| Intuitive Surgical Inc. | 30.74% | 4.54% | -20.88% | — | — | |
| Medtronic PLC | -1.10% | 1.80% | -0.97% | — | — | |
| UnitedHealth Group Inc. | 7.71% | 7.40% | 21.73% | — | — | |
| 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.
The financial profile between 2021 and 2024 is characterized by a consistent reduction in net operating assets and a transition toward negative aggregate accruals. This pattern indicates a shift where cash flows from operations have increasingly exceeded accrual-based earnings.
- Net Operating Assets Trend
- A continuous downward trajectory is observed in net operating assets, which declined from 74,853 million US dollars in 2021 to 65,000 million US dollars by 2024. This steady decrease suggests a contraction in the capital tied up in operating activities over the analyzed period.
- Analysis of Aggregate Accruals
- Cash-flow-statement-based aggregate accruals transitioned from a positive 1,785 million US dollars in 2021 to negative figures in all subsequent years. The values exhibit notable volatility, reaching a low of -5,086 million US dollars in 2022, moderating to -1,475 million US dollars in 2023, and declining again to -4,827 million US dollars in 2024.
- Accruals Ratio Interpretation
- The accruals ratio mirrored the volatility of the aggregate accruals, moving from a positive 2.43% in 2021 to -7.06% in 2022, -2.14% in 2023, and -7.23% in 2024. The persistence of negative ratios from 2022 through 2024 suggests that operational cash flows have consistently outpaced reported net income. In financial analysis, such negative accruals are typically interpreted as an indicator of high earnings quality and conservative accounting practices.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?