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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ConocoPhillips pages available for free this week:
- Statement of Comprehensive Income
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Price to Book Value (P/BV) since 2005
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Balance-Sheet-Based Accruals Ratio
ConocoPhillips, 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 | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Less: Investment in Cenovus Energy | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt | ||||||
| Less: Long-term debt | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| Exxon Mobil Corp. | ||||||
| Occidental Petroleum Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
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.
The analysis of the financial reporting quality measures over the four-year period reveals several notable trends and variations.
- Net Operating Assets
- The net operating assets exhibited an overall upward trend, starting at $58,749 million in 2021, decreasing slightly to $55,403 million in 2022, followed by a moderate increase to $61,610 million in 2023, and culminating in a significant rise to $83,006 million by 2024. This pattern indicates a general expansion of net operating assets, with a temporary decline in 2022.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals experienced substantial fluctuations. In 2021, the measure was $21,387 million, sharply dropping to a negative amount of -$3,346 million in 2022. It then rebounded to a positive figure of $6,207 million in 2023, and further increased substantially to $21,396 million in 2024. This indicates significant volatility, with a notable reversal from negative accruals in 2022 to positive and growing accruals in subsequent years.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, similarly showed a volatile pattern. It started high at 44.5% in 2021, sharply decreased to -5.86% in 2022, then rose to 10.61% in 2023, before increasing markedly again to 29.59% in 2024. The initial high ratio suggests a relatively large proportion of accruals relative to net operating assets, while the significant dip to a negative ratio in 2022 reflects the period's negative aggregate accruals. The subsequent recovery and increase through 2023 and 2024 suggest a return to higher accrual levels relative to net operating assets.
Overall, the data suggest that the financial reporting quality measure related to accruals has been highly variable over the examined period. The sharp movements in both aggregate accruals and the accruals ratio, especially the negative values in 2022 followed by recovery, may indicate changes in earnings management or economic conditions affecting accruals. The steadily increasing net operating assets from 2022 onwards supports a narrative of growth in operating resources, potentially enabling or reflecting shifts in financial reporting dynamics.
Cash-Flow-Statement-Based Accruals Ratio
ConocoPhillips, cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to ConocoPhillips | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | ||||||
| Exxon Mobil Corp. | ||||||
| Occidental Petroleum 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: 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.
The data reveals notable trends in the financial reporting quality over the analyzed periods. The Net Operating Assets exhibit an overall increasing trajectory, with a slight dip from 58,749 million US dollars at the end of 2021 to 55,403 million in 2022, followed by a rise to 61,610 million in 2023 and a more pronounced jump to 83,006 million in 2024. This suggests growth in operating asset base, which may reflect expansion or increased investment activities.
In contrast, the Cash-flow-statement-based Aggregate Accruals show significant volatility. Initially, there is a negative value of -373 million in 2021, which deepens to -893 million in 2022, indicating increasing negative accrual adjustments in these periods. However, in 2023, there is a substantial positive shift to 2,992 million, before declining again to 271 million in 2024. This pattern points to notable fluctuations in accrual accounting, which may affect earnings quality or reflect one-off adjustments.
The Cash-flow-statement-based Accruals Ratio also mirrors this volatility. It starts with a modest negative ratio of -0.78% in 2021, worsening to -1.56% in 2022, indicating a greater proportion of negative accruals relative to net operating assets. The ratio then sharply reverses to 5.11% in 2023, denoting a large positive accrual relative to net operating assets, and decreases substantially to 0.37% in 2024. This sharp swing further highlights the instability in accruals relative to operational asset size, potentially signaling variability in earnings quality or accounting practices over time.
Overall, the data suggests an expanding asset base alongside considerable fluctuations in accrual measures, which may warrant further scrutiny regarding the consistency and quality of earnings and cash flow reporting.