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
Elevance Health Inc., 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 | 121,494) | 116,889) | 108,928) | 102,772) | 97,460) | |
| Less: Cash and cash equivalents | 9,491) | 8,288) | 6,526) | 7,387) | 4,880) | |
| Less: Fixed maturity securities | 25,884) | 25,201) | 29,614) | 25,952) | 26,267) | |
| Less: Equity securities | 740) | 1,192) | 229) | 953) | 1,881) | |
| Operating assets | 85,379) | 82,208) | 72,559) | 68,480) | 64,432) | |
| Operating Liabilities | ||||||
| Total liabilities | 77,468) | 75,463) | 69,523) | 66,378) | 61,332) | |
| Less: Short-term borrowings | 150) | 365) | 225) | 265) | 275) | |
| Less: Current portion of long-term debt | 1,099) | 1,649) | 1,649) | 1,500) | 1,599) | |
| Less: Long-term debt, less current portion | 30,797) | 29,218) | 23,246) | 22,349) | 21,157) | |
| Operating liabilities | 45,422) | 44,231) | 44,403) | 42,264) | 38,301) | |
| Net operating assets1 | 39,957) | 37,977) | 28,156) | 26,216) | 26,131) | |
| Balance-sheet-based aggregate accruals2 | 1,980) | 9,821) | 1,940) | 85) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 5.08% | 29.70% | 7.14% | 0.32% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Abbott Laboratories | 4.88% | 15.62% | 6.06% | -0.73% | — | |
| Intuitive Surgical Inc. | -4.16% | 41.97% | 15.55% | -10.21% | — | |
| Medtronic PLC | 0.54% | -0.93% | 2.69% | -1.37% | 3.72% | |
| UnitedHealth Group Inc. | 1.05% | 16.02% | 13.41% | 17.32% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | 1.88% | 14.53% | 8.90% | 6.46% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 7.67% | 5.49% | 7.79% | 5.30% | — | |
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
= 85,379 – 45,422 = 39,957
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 39,957 – 37,977 = 1,980
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,980 ÷ [(39,957 + 37,977) ÷ 2] = 5.08%
4 Click competitor name to see calculations.
The balance-sheet-based accruals ratio exhibits significant fluctuations over the observed period. Initially, the ratio is low, but increases substantially in subsequent years before declining again. Net operating assets demonstrate a consistent upward trend throughout the period, while balance-sheet-based aggregate accruals show a volatile pattern.
- Net Operating Assets
- Net operating assets increased from US$26,216 million in 2022 to US$39,957 million in 2025. This represents a consistent growth trajectory, indicating expansion of the company’s operational footprint and asset base.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were relatively stable at US$85 million in 2022. However, a substantial increase is observed in 2023, reaching US$1,940 million. This trend continues into 2024, with accruals peaking at US$9,821 million, before decreasing to US$1,980 million in 2025. The volatility suggests potential changes in revenue recognition, expense timing, or working capital management practices.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio began at 0.32% in 2022. A marked increase is evident in 2023, rising to 7.14%. The ratio then experiences a dramatic surge in 2024, reaching 29.70%. In 2025, the ratio declines significantly to 5.08%. A rising accruals ratio can indicate potential earnings management, aggressive accounting practices, or unsustainable growth. The substantial increase in 2024, followed by a decrease in 2025, warrants further investigation to determine the underlying drivers and assess the quality of reported earnings. The ratio’s movement should be considered in conjunction with industry peers and overall economic conditions.
The divergence between the consistently growing net operating assets and the fluctuating accruals ratio suggests a dynamic relationship between operational performance and accounting practices. The significant increase in accruals in 2023 and 2024, coupled with the subsequent decline, requires further scrutiny to understand the reasons behind these changes and their potential impact on the reliability of financial reporting.
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Cash-Flow-Statement-Based Accruals Ratio
Elevance Health Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Shareholders’ net income | 5,662) | 5,980) | 5,987) | 6,025) | 6,104) | |
| Less: Net cash provided by operating activities | 4,290) | 5,808) | 8,061) | 8,399) | 8,364) | |
| Less: Net cash used in investing activities | (1,344) | (5,167) | (5,572) | (4,560) | (9,638) | |
| Cash-flow-statement-based aggregate accruals | 2,716) | 5,339) | 3,498) | 2,186) | 7,378) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 6.97% | 16.15% | 12.87% | 8.35% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Abbott Laboratories | -1.12% | 14.32% | 3.55% | -2.08% | — | |
| Intuitive Surgical Inc. | -6.85% | 30.74% | 4.54% | -20.88% | — | |
| Medtronic PLC | -0.66% | -1.10% | 1.80% | -0.97% | 0.35% | |
| UnitedHealth Group Inc. | 0.69% | 7.71% | 7.40% | 21.73% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | 0.57% | 8.55% | 5.82% | 8.70% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 4.65% | 4.00% | 8.59% | 4.25% | — | |
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 × 2,716 ÷ [(39,957 + 37,977) ÷ 2] = 6.97%
2 Click competitor name to see calculations.
Net operating assets exhibited a consistent upward trend over the four-year period, increasing from US$26,216 million in 2022 to US$39,957 million in 2025. Concurrently, cash-flow-statement-based aggregate accruals also generally increased, though with notable fluctuation. The cash-flow-statement-based accruals ratio, calculated from these figures, demonstrates a pattern of increasing accruals relative to operating assets, followed by a significant decrease in the final year.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals rose from US$2,186 million in 2022 to US$3,498 million in 2023, representing a substantial increase. This upward trajectory continued into 2024, reaching US$5,339 million. However, a considerable decline was observed in 2025, with accruals falling to US$2,716 million. This suggests a potential shift in the company’s operational practices or accounting policies impacting accrual levels.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio increased steadily from 8.35% in 2022 to 12.87% in 2023, and further to a peak of 16.15% in 2024. This indicates a growing proportion of operating assets financed by accruals. The ratio then experienced a marked decrease in 2025, falling to 6.97%. This substantial reduction suggests a decreased reliance on accruals to fund operating assets, potentially due to increased cash generation or changes in working capital management. The increase in the ratio over the first three years warrants further investigation to determine the underlying drivers and potential implications for earnings quality. The subsequent decrease in 2025 could indicate a correction or a change in business strategy.
The divergence between the increasing net operating assets and the decreasing accruals ratio in 2025 is a key observation. This could signify improved operational cash flow, more efficient asset utilization, or a deliberate change in accounting practices. Further analysis, including a comparison to industry peers and a review of the underlying components of accruals, is recommended to fully understand these trends and their potential impact on the company’s financial health.
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