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
GameStop Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 2,709,000) | 3,113,400) | 3,499,300) | 2,472,600) | 2,819,700) | 4,044,300) | |
| Less: Cash and cash equivalents | 921,700) | 1,139,000) | 1,271,400) | 508,500) | 499,400) | 1,624,400) | |
| Less: Marketable securities | 277,600) | 251,600) | —) | —) | —) | —) | |
| Operating assets | 1,509,700) | 1,722,800) | 2,227,900) | 1,964,100) | 2,320,300) | 2,419,900) | |
| Operating Liabilities | |||||||
| Total liabilities | 1,370,400) | 1,791,100) | 1,896,800) | 2,035,900) | 2,208,200) | 2,708,100) | |
| Less: Current portion of long-term debt | 10,800) | 10,800) | 4,100) | 121,700) | —) | 349,200) | |
| Less: Borrowings under revolving line of credit | —) | —) | —) | 25,000) | —) | —) | |
| Less: Long-term debt, excluding current portion | 17,700) | 28,700) | 40,500) | 216,000) | 419,800) | 471,600) | |
| Operating liabilities | 1,341,900) | 1,751,600) | 1,852,200) | 1,673,200) | 1,788,400) | 1,887,300) | |
| Net operating assets1 | 167,800) | (28,800) | 375,700) | 290,900) | 531,900) | 532,600) | |
| Balance-sheet-based aggregate accruals2 | 196,600) | (404,500) | 84,800) | (241,000) | (700) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 282.88% | -233.21% | 25.44% | -58.58% | -0.13% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Amazon.com Inc. | 26.40% | 18.01% | 32.91% | — | — | — | |
| Home Depot Inc. | -1.45% | 15.25% | 9.91% | — | — | — | |
| Lowe’s Cos. Inc. | 8.87% | -2.92% | 2.66% | — | — | — | |
| TJX Cos. Inc. | 7.22% | 30.23% | 73.65% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Discretionary Distribution & Retail | 20.94% | 16.15% | 26.47% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 12.07% | 12.01% | 13.04% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 1,509,700 – 1,341,900 = 167,800
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 167,800 – -28,800 = 196,600
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 196,600 ÷ [(167,800 + -28,800) ÷ 2] = 282.88%
4 Click competitor name to see calculations.
The financial data indicates significant volatility in accruals and net operating assets over the five-year period ending February 3, 2024. The wide fluctuations in the balance-sheet-based accruals ratio suggest an inconsistent relationship between accrual-based earnings and cash flows, reflecting high variability in reporting quality.
- Net Operating Assets Trends
- A non-linear trajectory is observed in net operating assets, which decreased from 531,900 thousand US dollars in 2020 to a minimum of -28,800 thousand US dollars in 2023, before recovering to 167,800 thousand US dollars in 2024. The contraction into negative territory during the 2023 period marks a significant departure from the prior operational asset structure.
- Aggregate Accruals Fluctuations
- Balance-sheet-based aggregate accruals exhibit extreme polarity. The values transitioned from a near-zero position of -700 thousand US dollars in 2020 to -241,000 thousand US dollars in 2021, followed by a positive swing to 84,800 thousand US dollars in 2022. This volatility peaked with a sharp decline to -404,500 thousand US dollars in 2023, before reversing to 196,600 thousand US dollars in 2024.
- Accruals Ratio Analysis
- The balance-sheet-based accruals ratio demonstrates severe instability. After moving from -0.13% in 2020 to -58.58% in 2021, the ratio shifted to 25.44% in 2022. The most extreme variance occurred between 2023 and 2024, where the ratio moved from -233.21% to 282.88%. Such drastic oscillations suggest that the components of the balance sheet are shifting rapidly relative to the operating asset base, which typically complicates the assessment of long-term earnings sustainability.
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Cash-Flow-Statement-Based Accruals Ratio
GameStop Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income (loss) | 6,700) | (313,100) | (381,300) | (215,300) | (470,900) | (673,000) | |
| Less: Net cash flows provided by (used in) operating activities | (203,700) | 108,200) | (434,300) | 123,700) | (414,500) | 325,100) | |
| Less: Net cash flows (used in) provided by investing activities | (33,200) | (222,700) | (64,800) | 36,900) | (60,900) | 635,500) | |
| Cash-flow-statement-based aggregate accruals | 243,600) | (198,600) | 117,800) | (375,900) | 4,500) | (1,633,600) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 350.50% | -114.50% | 35.34% | -91.37% | 0.85% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Amazon.com Inc. | 16.87% | -2.63% | -8.54% | — | — | — | |
| Home Depot Inc. | -3.12% | 14.43% | 8.24% | — | — | — | |
| Lowe’s Cos. Inc. | 7.91% | -4.62% | -0.14% | — | — | — | |
| TJX Cos. Inc. | 3.04% | 23.97% | 55.57% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Discretionary Distribution & Retail | 13.19% | 0.41% | -4.02% | 50.12% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 9.43% | 4.25% | 1.57% | 21.63% | — | — | |
Based on: 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 243,600 ÷ [(167,800 + -28,800) ÷ 2] = 350.50%
2 Click competitor name to see calculations.
The financial data indicates a period of extreme volatility regarding reporting quality and asset structure. The relationship between cash flows and accruals lacks stability, characterized by wide swings in both magnitude and direction over the observed five-year period.
- Net Operating Assets Trend
- Net operating assets experienced a general downward trajectory from 531.9 million in 2020, reaching a minimum negative value of 28.8 million in 2023. A partial recovery occurred by February 3, 2024, with assets rising to 167.8 million. The shift into negative territory in 2023 suggests a period where operating liabilities exceeded operating assets.
- Aggregate Accruals Behavior
- Cash-flow-statement-based aggregate accruals demonstrate an erratic pattern, alternating between significant positive and negative values. Substantial negative accruals were recorded in 2021 (-375.9 million) and 2023 (-198.6 million), while 2024 saw a sharp reversal to a positive 243.6 million. This inconsistency indicates frequent and large non-cash adjustments to net income.
- Accruals Ratio Analysis
- The accruals ratio exhibits severe instability, fluctuating from a low of -114.50% in 2023 to an extreme peak of 350.50% in 2024. Such dramatic swings, particularly the transition from deep negative percentages to a ratio exceeding 300%, suggest significant volatility in earnings quality and a decoupled relationship between reported accounting profits and actual cash flow generation relative to the operating asset base.
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