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.
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- Statement of Comprehensive Income
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
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Balance-Sheet-Based Accruals Ratio
GE Aerospace, 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 | ||||||
| Less: Cash, cash equivalents and restricted cash | ||||||
| Less: Investment securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings | ||||||
| Less: Long-term borrowings | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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.
- Net operating assets
- The net operating assets display a downward trend over the four-year period. Starting at 48,730 million US dollars at the end of 2021, the value decreased to 45,061 million in 2022 and experienced a more significant decline to 26,870 million by the end of 2023, followed by a further reduction to 24,236 million in 2024. This consistent decrease suggests a substantial reduction in invested capital or operating asset base over the observed timeframe.
- Balance-sheet-based aggregate accruals
- The aggregate accruals demonstrate considerable variability with negative values throughout. In 2021, the accruals stood at -19,461 million US dollars, improving markedly to -3,669 million in 2022. However, a reversal occurred in 2023 where the accruals sharply dropped again to -18,191 million, followed by a significant recovery to -2,634 million by 2024. This fluctuation indicates inconsistent adjustments between operating profits and cash flows, reflecting variability in earnings quality or accounting estimates.
- Balance-sheet-based accruals ratio
- The accruals ratio, expressed as a percentage, follows a similar pattern to the aggregate accruals with marked fluctuations. It starts at -33.29% in 2021, sharply improves to -7.82% in 2022, then deteriorates to -50.58% in 2023, and again recovers to -10.31% in 2024. Such pronounced oscillations suggest volatility in the relationship between accruals and net operating assets, which may signal varying reliability and sustainability in reported earnings across the years.
Cash-Flow-Statement-Based Accruals Ratio
GE Aerospace, 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 earnings (loss) attributable to the Company | ||||||
| Less: Cash from operating activities | ||||||
| Less: Cash (used for) from investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
- Net operating assets
- There is a clear downward trend in net operating assets over the period. The value decreased significantly from 48,730 million US dollars in 2021 to 24,236 million US dollars in 2024. This indicates a substantial reduction in the assets employed for operating purposes, suggesting either divestitures, operational downsizing, or efficiency improvements in asset usage.
- Cash-flow-statement-based aggregate accruals
- The aggregate accruals started at a large negative figure of -31,113 million US dollars in 2021, followed by a sharp decline in magnitude to -7,464 million in 2022 and further to -3,027 million in 2023. By 2024, the figure turned positive to 1,295 million US dollars. This progression reflects a movement from significant negative accruals towards positive accruals, implying improvement in the quality of earnings, as accrual adjustments reduce and eventually become positive.
- Cash-flow-statement-based accruals ratio
- The accruals ratio shows a consistent upward trend over the four-year period. It starts at -53.22% in 2021 and rises to -15.92% in 2022, then to -8.42% in 2023, before crossing into positive territory at 5.07% in 2024. The increase in the ratio, transitioning from a high negative value toward positive, suggests improving earnings quality and more alignment between net income and cash flows, which may indicate more reliable financial reporting.