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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General Motors Co. pages available for free this week:
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Current Ratio since 2010
- Price to Earnings (P/E) since 2010
- Price to Sales (P/S) since 2010
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Balance-Sheet-Based Accruals Ratio
General Motors Co., 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 and cash equivalents | ||||||
| Less: Marketable debt securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt and current portion of long-term debt | ||||||
| Less: Long-term debt, excluding current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Ford Motor Co. | ||||||
| Tesla Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Automobiles & Components | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | ||||||
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 show a steady increase over the four-year period, rising from 146,518 million USD in 2021 to 168,185 million USD in 2024. This consistent growth suggests that the company has been expanding its operational asset base year over year.
- Balance-sheet-based Aggregate Accruals
- There is a pronounced decline in the aggregate accruals from 15,985 million USD in 2021 to 4,603 million USD in 2024. This reduction indicates a decrease in accruals, which typically reflects improved earnings quality and less reliance on accounting adjustments.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, expressed as a percentage, has decreased significantly from 11.54% in 2021 to 2.77% in 2024. This downward trend supports the interpretation of higher financial reporting quality, as a lower accruals ratio generally signals more earnings backed by cash flows rather than accounting estimates or adjustments.
Cash-Flow-Statement-Based Accruals Ratio
General Motors Co., 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 stockholders | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Ford Motor Co. | ||||||
| Tesla Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Automobiles & Components | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | ||||||
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.
The data reveals distinct trends in key measures related to financial reporting quality over the four-year period ending in 2024.
- Net Operating Assets
- The net operating assets exhibit a consistent upward trajectory throughout the period analyzed. Starting at 146,518 million US dollars at the end of 2021, this figure increases steadily each year, reaching 168,185 million US dollars by the end of 2024. This represents a cumulative increase of approximately 15% over the four years, indicative of ongoing asset growth or expanded operational scale.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals, expressed in millions of US dollars, show an initial high level with 11,186 million in 2021. This value slightly increased to 11,773 million in 2022 but then experienced a marked decline, falling sharply to 3,860 million in 2023. A modest recovery is observed in 2024 with accruals rising again to 6,396 million. The sharp reduction starting in 2023 suggests a significant change in accrual accounting or a shift toward improved cash flow realization relative to earnings.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, mirrors the pattern seen in aggregate accruals but accentuates the relative proportion of accruals to the asset base. The ratio decreases from 8.08% in 2021 to 7.79% in 2022, then experiences a steep decline to 2.42% in 2023, followed by a partial rebound to 3.86% in 2024. This indicates a reduction in accrual intensity relative to net operating assets, implying potentially higher earnings quality or lower earnings management in the more recent years.
Overall, the trends suggest a growing asset base accompanied by a noteworthy reduction in accrual levels and their proportion to net operating assets, particularly from 2023 onward. The reduction in accrual ratios could be interpreted as an improvement in the quality of reported earnings, as cash flows increasingly dominate reported earnings components. However, the partial rebound in accruals in 2024 warrants continued observation for consistency of this pattern.