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.
Paying user area
Try for free
Danaher Corp. pages available for free this week:
- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Price to Earnings (P/E) since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Revenues
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Danaher Corp. for $24.99.
This is a one-time payment. There is no automatic renewal.
We accept:
Balance-Sheet-Based Accruals Ratio
Danaher Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Notes payable and current portion of long-term debt | ||||||
| Less: Long-term debt, excluding current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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 considerable fluctuation over the observed period. Net operating assets demonstrate a general upward trend, though with a slight decrease between 2023 and 2024.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals initially show a negative value in 2022, indicating a net reduction of operating assets through accruals. A substantial positive shift occurs in 2023, followed by a negative value in 2024, and then another positive value in 2025. This pattern suggests significant volatility in the use of accruals to manage reported earnings.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It begins at -1.55% in 2022, indicating accruals reduced net operating assets by 1.55%. The ratio increases significantly to 3.48% in 2023, suggesting accruals contributed to an increase in net operating assets. A substantial decline to -3.94% is observed in 2024, followed by a rise to 4.42% in 2025. The magnitude of these fluctuations warrants further investigation, as large swings in the accruals ratio can sometimes signal potential earnings management.
- Relationship to Net Operating Assets
- Despite the volatility in the accruals ratio, net operating assets generally increased over the period. The positive accruals in 2023 and 2025 appear to correlate with increases in net operating assets, while the negative accruals in 2022 and 2024 coincide with periods of slower growth or a slight decrease in net operating assets. However, the relationship is not consistently strong, and the large fluctuations in accruals suggest they are not simply reflecting normal operating cycle variations.
The observed patterns in the balance-sheet-based accruals ratio and aggregate accruals suggest a need for deeper scrutiny of the underlying accounting practices and potential drivers of these fluctuations. Further analysis, including comparison to industry peers and examination of specific accrual components, would be beneficial.
Cash-Flow-Statement-Based Accruals Ratio
Danaher Corp., 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 earnings | ||||||
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Pfizer Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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.
The analysis reveals significant fluctuations in cash-flow-statement-based aggregate accruals and the corresponding accruals ratio over the four-year period. Net operating assets demonstrate a generally stable pattern with a slight increase between 2022 and 2023, a decrease in 2024, and a subsequent increase in 2025.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals exhibit substantial volatility. An initial value of US$924 million in 2022 increased dramatically to US$5,322 million in 2023. This was followed by a significant reversal, resulting in negative accruals of US$-808 million in 2024 and further declining to US$-1,606 million in 2025. This pattern suggests considerable changes in the timing of cash receipts and payments relative to reported earnings.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It began at 1.44% in 2022, surged to 8.20% in 2023, and then transitioned to negative values, reaching -1.25% in 2024 and -2.47% in 2025. The shift to negative accruals ratios indicates that cash flows from operations are increasingly exceeding reported earnings, or conversely, that earnings are not being supported by corresponding cash inflows. The magnitude of the negative ratio in 2025 is notably larger than in 2024.
- Relationship between Net Operating Assets and Accruals
- While net operating assets show a relatively consistent trend, the large swings in accruals suggest that the relationship between reported earnings and underlying cash flows is not stable. The substantial increase in accruals in 2023, relative to the modest increase in net operating assets, warrants further investigation. Similarly, the negative accruals in 2024 and 2025, coupled with increasing net operating assets, require scrutiny to understand the drivers behind this divergence.
The observed patterns in accruals and the accruals ratio suggest potential areas for further financial statement analysis. The significant fluctuations could indicate aggressive revenue recognition practices, changes in working capital management, or other factors impacting the quality of reported earnings. A deeper dive into the components of accruals is recommended to determine the underlying causes of these trends.