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
Fair Isaac Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Sep 30, 2024 | Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 1,717,884) | 1,575,281) | 1,442,034) | 1,567,776) | 1,606,240) | 1,433,448) | |
| Less: Cash and cash equivalents | 150,667) | 136,778) | 133,202) | 195,354) | 157,394) | 106,426) | |
| Operating assets | 1,567,217) | 1,438,503) | 1,308,832) | 1,372,422) | 1,448,846) | 1,327,022) | |
| Operating Liabilities | |||||||
| Total liabilities | 2,680,563) | 2,263,271) | 2,243,981) | 1,678,718) | 1,275,158) | 1,143,681) | |
| Less: Current finance lease liabilities | 3,144) | —) | —) | —) | 2,186) | 1,935) | |
| Less: Current maturities on debt | 15,000) | 50,000) | 30,000) | 250,000) | 95,000) | 218,000) | |
| Less: Long-term debt, excluding current maturities | 2,194,021) | 1,811,658) | 1,823,669) | 1,009,018) | 739,435) | 606,790) | |
| Less: Non-current finance lease liabilities | 7,263) | —) | —) | —) | 3,076) | 3,489) | |
| Operating liabilities | 461,135) | 401,613) | 390,312) | 419,700) | 435,461) | 313,467) | |
| Net operating assets1 | 1,106,082) | 1,036,890) | 918,520) | 952,722) | 1,013,385) | 1,013,555) | |
| Balance-sheet-based aggregate accruals2 | 69,192) | 118,370) | (34,202) | (60,663) | (170) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 6.46% | 12.11% | -3.66% | -6.17% | -0.02% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Accenture PLC | 35.69% | 16.32% | 21.70% | 27.93% | — | — | |
| Adobe Inc. | -3.83% | 1.85% | -8.24% | 14.14% | — | — | |
| AppLovin Corp. | -0.63% | -1.52% | 36.28% | — | — | — | |
| Cadence Design Systems Inc. | 39.84% | 11.17% | 26.65% | — | — | — | |
| Datadog Inc. | -28.51% | -35.73% | 17.56% | — | — | — | |
| International Business Machines Corp. | 2.79% | 2.42% | 1.55% | — | — | — | |
| Intuit Inc. | 3.35% | -1.74% | 85.68% | — | — | — | |
| Microsoft Corp. | 52.18% | 22.96% | 42.27% | — | — | — | |
| Oracle Corp. | 4.30% | 51.77% | 9.90% | — | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 89.91% | 137.01% | -124.73% | — | — | — | |
| Salesforce Inc. | -2.46% | -2.30% | 57.74% | — | — | — | |
| ServiceNow Inc. | 22.91% | 61.79% | 12.89% | — | — | — | |
| Synopsys Inc. | 7.85% | 13.85% | 5.01% | 0.36% | — | — | |
| Workday Inc. | 28.44% | -11.24% | 55.93% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 26.12% | 18.31% | 29.53% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 20.88% | 8.81% | 19.09% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2024-09-30), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 1,567,217 – 461,135 = 1,106,082
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 1,106,082 – 1,036,890 = 69,192
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 69,192 ÷ [(1,106,082 + 1,036,890) ÷ 2] = 6.46%
4 Click competitor name to see calculations.
The financial reporting quality, as measured by balance-sheet-based aggregate accruals, exhibits a significant transition from negative to positive territory between 2020 and 2024. While net operating assets showed moderate volatility, the accruals ratio shifted from a low of -6.17% in 2021 to a peak of 12.11% in 2023, before moderating to 6.46% in 2024.
- Net Operating Assets Trend
- Net operating assets experienced a gradual decline from $1,013,385 thousand in 2020 to a low of $918,520 thousand in 2022. This was followed by a consistent recovery and expansion, reaching $1,106,082 thousand by September 30, 2024, indicating an overall growth in the operating asset base over the five-year period.
- Aggregate Accruals Movement
- Aggregate accruals were nearly neutral in 2020 at -$170 thousand and became significantly negative in 2021 (-$60,663 thousand) and 2022 (-$34,202 thousand). A sharp reversal occurred in 2023, with accruals turning positive at $118,370 thousand, before decreasing to $69,192 thousand in 2024. This movement suggests a change in the alignment between reported accrual-based earnings and actual cash flows.
- Accruals Ratio Analysis
- The accruals ratio followed a mirrored trajectory to the aggregate accruals. The negative ratios observed from 2020 through 2022 suggest a period where cash flows likely exceeded reported net income, which is often associated with conservative accounting. The transition to a positive ratio, peaking at 12.11% in 2023 and remaining positive at 6.46% in 2024, indicates a shift toward earnings that are less supported by immediate cash inflows, potentially due to growth in non-cash operating assets or a decrease in operating liabilities.
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Cash-Flow-Statement-Based Accruals Ratio
Fair Isaac Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Sep 30, 2024 | Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | 512,811) | 429,375) | 373,541) | 392,084) | 236,411) | 192,124) | |
| Less: Net cash provided by operating activities | 632,964) | 468,915) | 509,450) | 423,817) | 364,916) | 260,350) | |
| Less: Net cash used in investing activities | (27,993) | (15,954) | (5,671) | 137,850) | (24,583) | (42,760) | |
| Cash-flow-statement-based aggregate accruals | (92,160) | (23,586) | (130,238) | (169,583) | (103,922) | (25,466) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -8.60% | -2.41% | -13.92% | -17.25% | -10.25% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Accenture PLC | 24.31% | -0.19% | 11.87% | 11.80% | — | — | |
| Adobe Inc. | -21.90% | -21.73% | -19.93% | 9.21% | — | — | |
| AppLovin Corp. | -10.24% | -15.40% | 22.07% | — | — | — | |
| Cadence Design Systems Inc. | 17.36% | 3.78% | 15.03% | — | — | — | |
| Datadog Inc. | 30.92% | 53.36% | -34.44% | — | — | — | |
| International Business Machines Corp. | -3.73% | 0.99% | -7.22% | — | — | — | |
| Intuit Inc. | -8.44% | -8.74% | 25.60% | — | — | — | |
| Microsoft Corp. | 30.89% | 5.22% | 13.42% | — | — | — | |
| Oracle Corp. | -1.01% | 42.79% | -30.58% | — | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 33.84% | -37.95% | -196.64% | — | — | — | |
| Salesforce Inc. | -8.44% | -8.49% | 21.96% | — | — | — | |
| ServiceNow Inc. | -7.12% | 15.44% | 8.80% | — | — | — | |
| Synopsys Inc. | -7.64% | 0.20% | -4.64% | -4.88% | — | — | |
| Workday Inc. | 34.56% | 18.64% | -0.65% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 12.11% | 7.33% | 2.29% | 21.87% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 5.99% | 1.37% | 3.25% | 15.65% | — | — | |
Based on: 10-K (reporting date: 2024-09-30), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -92,160 ÷ [(1,106,082 + 1,036,890) ÷ 2] = -8.60%
2 Click competitor name to see calculations.
Between the fiscal years 2020 and 2024, the company exhibited a consistent trend of negative cash-flow-statement-based accruals. This persistent negative correlation indicates that operating cash flows remained higher than accrual-based earnings throughout the period, a condition typically associated with conservative financial reporting and high earnings quality.
- Net Operating Assets
- A U-shaped trajectory is observed in net operating assets. Values declined from 1,013,385 thousand USD in 2020 to a low of 918,520 thousand USD in 2022. This was followed by a period of growth, with assets increasing to 1,036,890 thousand USD in 2023 and reaching 1,106,082 thousand USD by September 30, 2024.
- Aggregate Accruals
- Cash-flow-statement-based aggregate accruals remained negative throughout the five-year period. The magnitude of these negative accruals peaked in 2021 at -169,583 thousand USD. A significant contraction occurred in 2023, where accruals narrowed to -23,586 thousand USD, before expanding again to -92,160 thousand USD in 2024.
- Accruals Ratio
- The accruals ratio followed the volatility of the aggregate accruals, fluctuating between -2.41% and -17.25%. The most pronounced negative ratio was recorded in 2021 (-17.25%), while the ratio closest to zero occurred in 2023 (-2.41%). The final recorded value in 2024 was -8.60%, confirming that the company's accruals remained consistently negative relative to its net operating assets over the observed duration.
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