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
FedEx Corp., balance sheet computation of aggregate accruals
US$ in millions
| May 31, 2026 | May 31, 2025 | May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 98,937) | 87,627) | 87,007) | 87,143) | 85,994) | 82,777) | |
| Less: Cash and cash equivalents | 13,311) | 5,502) | 6,501) | 6,856) | 6,897) | 7,087) | |
| Operating assets | 85,626) | 82,125) | 80,506) | 80,287) | 79,097) | 75,690) | |
| Operating Liabilities | |||||||
| Total liabilities | 67,290) | 59,553) | 59,425) | 61,055) | 61,055) | 58,609) | |
| Less: Current portion of long-term debt | 1,676) | 1,428) | 68) | 126) | 82) | 146) | |
| Less: Short-term borrowings | 745) | —) | —) | —) | —) | —) | |
| Less: Long-term debt, less current portion | 23,293) | 19,151) | 20,135) | 20,453) | 20,182) | 20,733) | |
| Operating liabilities | 41,576) | 38,974) | 39,222) | 40,476) | 40,791) | 37,730) | |
| Net operating assets1 | 44,050) | 43,151) | 41,284) | 39,811) | 38,306) | 37,960) | |
| Balance-sheet-based aggregate accruals2 | 899) | 1,867) | 1,473) | 1,505) | 346) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 2.06% | 4.42% | 3.63% | 3.85% | 0.91% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Uber Technologies Inc. | — | 20.97% | 40.44% | 21.78% | -40.74% | — | |
| Union Pacific Corp. | — | 3.59% | 1.61% | 4.02% | 3.63% | — | |
| United Airlines Holdings Inc. | — | 4.28% | 0.97% | 15.54% | 3.50% | — | |
| United Parcel Service Inc. | — | 7.77% | -13.05% | 7.14% | 26.54% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Transportation | 0.00% | 7.36% | 3.77% | 8.11% | 2.58% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Industrials | 0.00% | 5.63% | 4.36% | -0.83% | 0.67% | — | |
Based on: 10-K (reporting date: 2026-05-31), 10-K (reporting date: 2025-05-31), 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 85,626 – 41,576 = 44,050
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 44,050 – 43,151 = 899
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 899 ÷ [(44,050 + 43,151) ÷ 2] = 2.06%
4 Click competitor name to see calculations.
An analysis of the financial reporting quality reveals a steady expansion of the net operating asset base accompanied by significant volatility in aggregate accruals from May 2022 through May 2026. While the scale of operations grew consistently, the relationship between reported earnings and cash flows shifted, as evidenced by the fluctuating accruals ratio.
- Net Operating Assets Growth
- Net operating assets maintained a consistent upward trend, rising from US$ 38,306 million in 2022 to US$ 44,050 million in 2026. This steady increase indicates a continuous growth in the capital invested in core operational assets over the five-year period.
- Aggregate Accruals Dynamics
- Balance-sheet-based aggregate accruals showed marked instability. A sharp increase occurred between 2022 and 2023, with values rising from US$ 346 million to US$ 1,505 million. This figure peaked at US$ 1,867 million in 2025 before experiencing a substantial contraction to US$ 899 million in 2026.
- Accruals Ratio Analysis
- The balance-sheet-based accruals ratio transitioned from a low of 0.91% in 2022 to a peak of 4.42% in 2025. The rapid escalation between 2022 and 2023 suggests a period where accounting accruals had a more pronounced impact on reported financial results relative to cash flows. The reduction to 2.06% by 2026 indicates a reversal of this trend, suggesting higher earnings quality as the gap between accrual-based reporting and cash realizations narrowed.
AI Ask an analyst for more
Cash-Flow-Statement-Based Accruals Ratio
FedEx Corp., cash flow statement computation of aggregate accruals
US$ in millions
| May 31, 2026 | May 31, 2025 | May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income | 4,433) | 4,092) | 4,331) | 3,972) | 3,826) | 5,231) | |
| Less: Cash provided by operating activities | 8,925) | 7,036) | 8,312) | 8,848) | 9,832) | 10,135) | |
| Less: Cash used in investing activities | (3,911) | (4,092) | (5,200) | (6,174) | (6,816) | (6,010) | |
| Cash-flow-statement-based aggregate accruals | (581) | 1,148) | 1,219) | 1,298) | 810) | 1,106) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -1.33% | 2.72% | 3.01% | 3.32% | 2.12% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Uber Technologies Inc. | — | 12.72% | 28.63% | 10.31% | -49.13% | — | |
| Union Pacific Corp. | — | 3.36% | 1.56% | 3.67% | 2.53% | — | |
| United Airlines Holdings Inc. | — | 4.64% | -13.64% | 7.35% | 38.00% | — | |
| United Parcel Service Inc. | — | 5.59% | -12.08% | 10.26% | 16.44% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Transportation | 0.00% | 5.27% | 0.04% | 6.23% | 4.77% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Industrials | 0.00% | 2.24% | 5.28% | 1.66% | -2.30% | — | |
Based on: 10-K (reporting date: 2026-05-31), 10-K (reporting date: 2025-05-31), 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -581 ÷ [(44,050 + 43,151) ÷ 2] = -1.33%
2 Click competitor name to see calculations.
An analysis of the financial reporting quality from May 31, 2022, to May 31, 2026, indicates a shift in the relationship between accrual-based earnings and cash flows. While the operational asset base expanded consistently, the accruals ratio underwent a transition from positive to negative values, suggesting a change in the quality of reported earnings.
- Net Operating Asset Growth
- Net operating assets demonstrated a steady increase throughout the analyzed period, growing from 38,306 million US dollars in 2022 to 44,050 million US dollars in 2026. This suggests a consistent expansion of the operational footprint over the five-year span.
- Aggregate Accruals Performance
- Cash-flow-statement-based aggregate accruals rose from 810 million US dollars in 2022 to a peak of 1,298 million US dollars in 2023. A gradual reduction followed over the next two years, culminating in a significant reversal to -581 million US dollars in 2026. The emergence of negative aggregate accruals in the final year indicates that cash flows from operations surpassed accrual-based net income.
- Accruals Ratio Interpretation
- The accruals ratio increased from 2.12% in 2022 to 3.32% in 2023, representing a period where non-cash earnings played a larger role relative to assets. Between 2023 and 2025, a gradual downward trend was observed, with the ratio settling at 2.72%. This trend culminated in a sharp decline to -1.33% in 2026. This transition to a negative ratio is typically indicative of high earnings quality, reflecting a state where cash generation exceeds the reported accounting profit.
AI Ask an analyst for more