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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Coca-Cola Co. pages available for free this week:
- Statement of Comprehensive Income
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
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Balance-Sheet-Based Accruals Ratio
Coca-Cola Co., 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: Short-term investments | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Loans and notes payable | ||||||
| Less: Current maturities of long-term debt | ||||||
| Less: Long-term debt, excluding current maturities | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
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 fluctuation over the observed period. Net operating assets demonstrate a consistent upward trend, while aggregate accruals display a marked shift from negative to positive values.
- Net Operating Assets
- Net operating assets increased steadily from US$53,344 million in 2022 to US$63,961 million in 2025. This represents a cumulative growth of approximately 20% over the four-year period, indicating consistent operational expansion.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals were negative in 2022, at -US$1,652 million, suggesting a reduction in liabilities relative to assets or a realization of deferred revenue. A substantial positive shift occurred in 2023, with accruals reaching US$2,537 million. This trend continued, albeit at a slower pace, with accruals at US$442 million in 2024, before increasing significantly to US$7,638 million in 2025. The positive accruals in the later years indicate an increase in liabilities or a deferral of revenue.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It began at -3.05% in 2022, reflecting the negative accruals. A dramatic increase was observed in 2023, reaching 4.65%. The ratio decreased to 0.79% in 2024, before rising sharply to 12.70% in 2025. The substantial increase in the accruals ratio in 2025 warrants further investigation, as it could indicate aggressive revenue recognition practices or potential earnings management. The initial negative value suggests a conservative approach to revenue recognition or a focus on cash collection in 2022.
The divergence between the increasing net operating assets and the fluctuating accruals ratio suggests a changing relationship between operational performance and accounting practices. The significant increase in the accruals ratio in 2025, relative to prior periods, is a key observation that merits additional scrutiny.
Cash-Flow-Statement-Based Accruals Ratio
Coca-Cola Co., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to shareowners of The Coca-Cola Company | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash (used in) provided by investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
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.
Net operating assets exhibited a consistent upward trend over the four-year period, increasing from 53,344 million to 63,961 million. However, the cash-flow-statement-based aggregate accruals demonstrate significant volatility. Initially negative, accruals became positive and increased substantially throughout the period, culminating in a notable rise in the final year. This fluctuation is reflected in the cash-flow-statement-based accruals ratio, which shows a marked shift from negative values to a substantial positive percentage.
- Cash-Flow-Statement-Based Aggregate Accruals
- The cash-flow-statement-based aggregate accruals were negative in 2022 at -713 million, indicating that cash flows exceeded reported earnings. A substantial reversal occurred in 2023, with accruals rising to 2,464 million. This positive trend continued in 2024, albeit at a slower pace, reaching 1,302 million. The most significant increase was observed in 2025, with accruals reaching 5,766 million. This suggests a growing divergence between reported earnings and actual cash flows in later years.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. In 2022, the ratio was -1.32%, reflecting the negative accruals. A dramatic increase was seen in 2023, with the ratio reaching 4.51%. The ratio continued to rise, though at a reduced rate, to 2.32% in 2024. The most substantial change occurred in 2025, with the ratio increasing to 9.59%. This indicates a growing proportion of reported earnings are attributable to accruals rather than cash flow, potentially warranting further investigation into the quality of earnings.
The increasing accruals ratio, particularly the significant jump in 2025, suggests a potential area of concern regarding financial reporting quality. While positive accruals are not inherently negative, a substantial and rapidly increasing ratio may indicate aggressive revenue recognition or delayed expense recognition. Further analysis, including a comparison to industry peers and a review of underlying accounting policies, is recommended.