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
Cash-Flow-Statement-Based Accruals Ratio

Freeport-McMoRan Inc., balance sheet computation of aggregate accruals

US$ in millions

	Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020
Operating Assets
Total assets	54,848)	52,506)	51,093)	48,022)	42,144)
Less: Cash and cash equivalents	3,923)	4,758)	8,146)	8,068)	3,657)
Less: Restricted cash and cash equivalents	888)	1,208)	111)	—)	—)
Operating assets	50,037)	46,540)	42,836)	39,954)	38,487)
Operating Liabilities
Total liabilities	26,070)	25,196)	26,222)	25,003)	23,476)
Less: Current portion of debt	41)	766)	1,037)	372)	34)
Less: Long-term debt, less current portion	8,907)	8,656)	9,583)	9,078)	9,677)
Operating liabilities	17,122)	15,774)	15,602)	15,553)	13,765)

Net operating assets¹	32,915)	30,766)	27,234)	24,401)	24,722)
Balance-sheet-based aggregate accruals²	2,149)	3,532)	2,833)	(321)	—)
Financial Ratio
Balance-sheet-based accruals ratio³	6.75%	12.18%	10.97%	-1.31%	—
Benchmarks
Balance-Sheet-Based Accruals Ratio, Industry
Materials	3.19%	5.47%	1.53%	-5.48%	—

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
= 50,037 – 17,122 = 32,915

² 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets₂₀₂₄ – Net operating assets₂₀₂₃
= 32,915 – 30,766 = 2,149

³ 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,149 ÷ [(32,915 + 30,766) ÷ 2] = 6.75%

Net Operating Assets: The net operating assets demonstrate a consistent upward trajectory over the four-year period. Starting at 24,401 million US dollars in 2021, the figure increased to 27,234 million in 2022, followed by a further rise to 30,766 million in 2023, and reached 32,915 million by the end of 2024. This trend indicates an expansion of the company's operational asset base year over year.
Balance-sheet-based Aggregate Accruals: There is significant variability in the balance-sheet-based aggregate accruals across the reported years. In 2021, the accruals were negative at -321 million US dollars, suggesting possible reversals or adjustments. However, in 2022 and 2023, these accruals sharply increased, reaching 2,833 million and 3,532 million, respectively. In 2024, the accruals decreased to 2,149 million but remained substantially positive compared to 2021. This pattern highlights a notable rise in accrual-based accounting adjustments from 2022 onwards.
Balance-sheet-based Accruals Ratio: The accruals ratio exhibits a marked change during the period under review. Initially negative at -1.31% in 2021, the ratio transitioned to a positive and considerable value of 10.97% in 2022, followed by a slight increase to 12.18% in 2023, and then a decline to 6.75% in 2024. This behavior reflects the significant increase in accruals relative to net operating assets beginning in 2022, with a moderation in the last year. The elevated accrual ratios during these periods may warrant closer scrutiny regarding earnings quality and the underlying components contributing to the accruals.

Freeport-McMoRan Inc., cash flow statement computation of aggregate accruals

US$ in millions

	Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020
Net income attributable to common stockholders	1,889)	1,848)	3,468)	4,306)	599)
Less: Net cash provided by operating activities	7,160)	5,279)	5,139)	7,715)	3,017)
Less: Net cash used in investing activities	(5,028)	(4,956)	(3,440)	(1,964)	(1,264)
Cash-flow-statement-based aggregate accruals	(243)	1,525)	1,769)	(1,445)	(1,154)
Financial Ratio
Cash-flow-statement-based accruals ratio¹	-0.76%	5.26%	6.85%	-5.88%	—
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Industry
Materials	2.23%	3.08%	1.97%	-4.42%	—

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 × -243 ÷ [(32,915 + 30,766) ÷ 2] = -0.76%

The data reveals several trends in the financial reporting quality indicators over the four-year period ending in 2024. Net operating assets exhibit a consistent upward trajectory, increasing from 24,401 million US dollars in 2021 to 32,915 million US dollars in 2024. This steady growth suggests expanding operational resources or investments over time.

Turning to the cash-flow-statement-based aggregate accruals, there is notable volatility. In 2021, the figure is negative at -1,445 million, then sharply rises to a positive 1,769 million in 2022, maintaining a similar positive level in 2023 at 1,525 million, before reverting to a negative value of -243 million in 2024. This fluctuation indicates varying degrees of accrual adjustments relative to operating cash flows, which may affect earnings quality and reflect changes in accounting estimates, revenue recognition, or expense deferrals.

The cash-flow-statement-based accruals ratio, representing aggregate accruals as a percentage of net operating assets, mirrors this volatility. It shifts from a negative ratio of -5.88% in 2021 to positive values of 6.85% in 2022 and 5.26% in 2023, before decreasing to -0.76% in 2024. The positive ratios in 2022 and 2023 imply accruals enhanced earnings relative to operating assets during these years, while the negative ratios in 2021 and 2024 suggest the opposite effect, potentially signaling lower earnings quality or more conservative revenue recognition in those periods.

Overall, the increasing net operating assets combined with the fluctuating accruals and accrual ratios may indicate changing dynamics in the company’s earnings quality and operational asset utilization. The trend points to periods of both aggressive and conservative accounting practices over the analyzed timeline, which warrants further investigation into the underlying causes of these fluctuations to better understand their impact on financial performance and sustainability.

Freeport-McMoRan Inc. (NYSE:FCX)

Financial Reporting Quality: Aggregate Accruals

Balance-Sheet-Based Accruals Ratio

Cash-Flow-Statement-Based Accruals Ratio