Stock Analysis on Net

Danaher Corp. (NYSE:DHR)

Financial Reporting Quality: Aggregate Accruals 

Microsoft Excel

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

Danaher Corp., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Operating Assets
Total assets 77,542 84,488 84,350 83,184 76,161
Less: Cash and equivalents 2,078 5,864 5,995 2,586 6,035
Operating assets 75,464 78,624 78,355 80,598 70,126
Operating Liabilities
Total liabilities 27,992 30,998 34,260 38,007 36,384
Less: Notes payable and current portion of long-term debt 505 1,695 591 8 11
Less: Long-term debt, excluding current portion 15,500 16,707 19,086 22,168 21,193
Operating liabilities 11,987 12,596 14,583 15,831 15,180
 
Net operating assets1 63,477 66,028 63,772 64,767 54,946
Balance-sheet-based aggregate accruals2 (2,551) 2,256 (995) 9,821
Financial Ratio
Balance-sheet-based accruals ratio3 -3.94% 3.48% -1.55% 16.41%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
AbbVie Inc. 13.10% -22.39% -14.27% -9.69%
Amgen Inc. -10.36% 57.08% 4.07% 0.70%
Bristol-Myers Squibb Co. -3.21% -7.12% -3.86% -13.40%
Eli Lilly & Co. 29.18% 28.84% 11.38% 16.60%
Gilead Sciences Inc. -11.79% 1.04% -2.92% -2.34%
Johnson & Johnson 10.61% -21.13% 19.84% 3.75%
Merck & Co. Inc. 6.20% 3.16% 0.46% 25.14%
Pfizer Inc. -11.48% 30.66% 24.95% -7.11%
Regeneron Pharmaceuticals Inc. 25.51% 1.17% 11.07% 43.54%
Thermo Fisher Scientific Inc. 2.28% 4.96% -1.78% 43.38%
Vertex Pharmaceuticals Inc. 42.13% 61.24% 14.07% 18.20%
Balance-Sheet-Based Accruals Ratio, Sector
Pharmaceuticals, Biotechnology & Life Sciences 1.64% 7.36% 4.84% 6.18%
Balance-Sheet-Based Accruals Ratio, Industry
Health Care 5.24% 8.72% 3.57% 4.72%

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
= 75,46411,987 = 63,477

2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 63,47766,028 = -2,551

3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,551 ÷ [(63,477 + 66,028) ÷ 2] = -3.94%

4 Click competitor name to see calculations.


Net Operating Assets
The net operating assets showed a fluctuating but overall slightly declining trend over the four-year period. The value decreased from 64,767 million USD in 2021 to 63,772 million USD in 2022, followed by a slight increase to 66,028 million USD in 2023, and then a decline again to 63,477 million USD in 2024. This pattern indicates some variability in the company's operating assets but no sustained growth or reduction trend.
Balance-sheet-based Aggregate Accruals
The aggregate accruals exhibited considerable volatility during the observed periods. The figure was substantially positive at 9,821 million USD in 2021, sharply declining to a negative value of -995 million USD in 2022. It then rose again to 2,256 million USD in 2023 before dropping to -2,551 million USD in 2024. This alternating pattern between positive and negative values suggests inconsistent accrual accounting and potentially varying earnings quality in different years.
Balance-sheet-based Accruals Ratio
The accruals ratio mirrored the pattern seen in aggregate accruals, demonstrating significant fluctuation with a positive ratio of 16.41% in 2021 followed by a sharp drop to -1.55% in 2022. In 2023, the ratio increased to 3.48%, then decreased again to -3.94% in 2024. The presence of both positive and negative ratios over time could indicate periods of accrual reversals or changes in the company's earnings management approach, which may affect the reliability of income reported.

Cash-Flow-Statement-Based Accruals Ratio

Danaher Corp., cash flow statement computation of aggregate accruals

US$ in millions

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Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Net earnings 3,899 4,764 7,209 6,433 3,646
Less: Net cash provided by operating activities 6,688 6,490 8,519 8,358 6,215
Less: Net cash used in investing activities (1,981) (7,048) (2,234) (12,987) (21,239)
Cash-flow-statement-based aggregate accruals (808) 5,322 924 11,062 18,670
Financial Ratio
Cash-flow-statement-based accruals ratio1 -1.25% 8.20% 1.44% 18.48%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
AbbVie Inc. 10.32% -24.89% -16.25% -10.28%
Amgen Inc. -11.16% 52.47% 8.81% -12.87%
Bristol-Myers Squibb Co. -4.97% -5.99% -9.10% -12.73%
Eli Lilly & Co. 28.52% 28.13% 10.32% 5.30%
Gilead Sciences Inc. -18.05% -0.19% -4.95% -4.86%
Johnson & Johnson 10.58% 13.66% 10.78% 8.23%
Merck & Co. Inc. 5.00% 2.23% 0.61% 29.09%
Pfizer Inc. -5.24% 19.96% 18.46% 13.18%
Regeneron Pharmaceuticals Inc. 12.04% 14.35% 18.61% 49.24%
Thermo Fisher Scientific Inc. 4.71% 3.80% -0.06% 34.69%
Vertex Pharmaceuticals Inc. 43.34% 62.03% -14.45% 1.38%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Pharmaceuticals, Biotechnology & Life Sciences 2.07% 9.68% 2.52% 8.19%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Health Care 3.82% 9.13% 3.06% 6.04%

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 × -808 ÷ [(63,477 + 66,028) ÷ 2] = -1.25%

2 Click competitor name to see calculations.


The financial reporting quality measure data reveals notable trends over the four-year period ending in 2024. Net operating assets fluctuated moderately, starting at 64,767 million US dollars in 2021, dipping slightly to 63,772 million in 2022, then rising to a peak of 66,028 million in 2023, before decreasing again to 63,477 million in 2024. This indicates a degree of variability in the asset base, with no consistent upward or downward trajectory.

Cash-flow-statement-based aggregate accruals
There is substantial volatility in aggregate accruals across the years. The figure starts quite high at 11,062 million US dollars in 2021, sharply declines to 924 million in 2022, increases significantly to 5,322 million in 2023, and finally turns negative to -808 million in 2024. This pattern suggests considerable fluctuations in the relationship between reported earnings and cash flows, which could signal variability in earnings quality or changes in accounting policies or operating activities.
Cash-flow-statement-based accruals ratio
The accruals ratio follows a similar fluctuating trend. It begins at a relatively high 18.48% in 2021, drops steeply to 1.44% in 2022, rises again to 8.2% in 2023, and then turns negative to -1.25% in 2024. The ratio's shift from positive to negative in the final year indicates that cash flows may have exceeded accrual-based earnings, which could reflect improved cash generation or changes in accrual management during that period.

Overall, the data points to a dynamic and somewhat inconsistent pattern in the quality of earnings relative to cash flows. The pronounced fluctuations in both aggregate accruals and their ratio highlight potential variability in the reliability of reported earnings as indicators of cash flow performance across the observed years. Monitoring these metrics in subsequent periods would be advisable to assess whether these trends indicate temporary shifts or a more persistent change in financial reporting quality.