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
Home Depot Inc., balance sheet computation of aggregate accruals
US$ in millions
| Feb 1, 2026 | Feb 2, 2025 | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 105,095) | 96,119) | 76,530) | 76,445) | 71,876) | 70,581) | |
| Less: Cash and cash equivalents | 1,389) | 1,659) | 3,760) | 2,757) | 2,343) | 7,895) | |
| Operating assets | 103,706) | 94,460) | 72,770) | 73,688) | 69,533) | 62,686) | |
| Operating Liabilities | |||||||
| Total liabilities | 92,282) | 89,479) | 75,486) | 74,883) | 73,572) | 67,282) | |
| Less: Short-term debt | 4,464) | 316) | —) | —) | 1,035) | —) | |
| Less: Current installments of long-term debt | 4,967) | 4,582) | 1,368) | 1,231) | 2,447) | 1,416) | |
| Less: Long-term debt, excluding current installments | 46,341) | 48,485) | 42,743) | 41,962) | 36,604) | 35,822) | |
| Operating liabilities | 36,510) | 36,096) | 31,375) | 31,690) | 33,486) | 30,044) | |
| Net operating assets1 | 67,196) | 58,364) | 41,395) | 41,998) | 36,047) | 32,642) | |
| Balance-sheet-based aggregate accruals2 | 8,832) | 16,969) | (603) | 5,951) | 3,405) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 14.07% | 34.02% | -1.45% | 15.25% | 9.91% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Amazon.com Inc. | — | 37.22% | 26.40% | 18.01% | 32.91% | — | |
| Lowe’s Cos. Inc. | 39.89% | -2.68% | 8.87% | -2.92% | 2.66% | — | |
| TJX Cos. Inc. | 14.19% | 25.93% | 7.22% | 30.23% | 73.65% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Discretionary Distribution & Retail | 0.00% | 34.65% | 20.94% | 16.15% | 26.47% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 0.00% | 16.70% | 12.07% | 12.01% | 13.04% | — | |
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 103,706 – 36,510 = 67,196
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 67,196 – 58,364 = 8,832
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 8,832 ÷ [(67,196 + 58,364) ÷ 2] = 14.07%
4 Click competitor name to see calculations.
Net operating assets exhibited a generally increasing trend over the five-year period. Beginning at US$36,047 million, they rose to US$41,998 million before experiencing a slight decrease to US$41,395 million. Subsequent years saw substantial growth, reaching US$58,364 million and ultimately US$67,196 million.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals demonstrated considerable volatility. An initial increase from US$3,405 million to US$5,951 million was followed by a significant decline, resulting in a negative value of US$603 million. Accruals then surged to US$16,969 million before moderating to US$8,832 million in the final year.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio mirrored the fluctuations in aggregate accruals. The ratio increased from 9.91% to 15.25% before turning negative at -1.45%. A substantial increase was then observed, with the ratio reaching 34.02%, followed by a decrease to 14.07% in the most recent year. The negative value in 2024 suggests a reversal of accruals, potentially indicating a reduction in reliance on accrual accounting to manage earnings. The peak in 2025 warrants further investigation to understand the underlying drivers of this significant increase in accruals relative to net operating assets.
The divergence between the trend in net operating assets and the accruals ratio is notable. While net operating assets generally increased, the accruals ratio experienced substantial swings, suggesting potential changes in the company’s accounting practices or operating cycle. The large increase in the accruals ratio in 2025, despite continued growth in net operating assets, is a key area for further scrutiny.
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Cash-Flow-Statement-Based Accruals Ratio
Home Depot Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Feb 1, 2026 | Feb 2, 2025 | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net earnings | 14,156) | 14,806) | 15,143) | 17,105) | 16,433) | 12,866) | |
| Less: Net cash provided by operating activities | 16,325) | 19,810) | 21,172) | 14,615) | 16,571) | 18,839) | |
| Less: Net cash used in investing activities | (8,980) | (21,031) | (4,729) | (3,140) | (2,969) | (10,170) | |
| Cash-flow-statement-based aggregate accruals | 6,811) | 16,027) | (1,300) | 5,630) | 2,831) | 4,197) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 10.85% | 32.13% | -3.12% | 14.43% | 8.24% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Amazon.com Inc. | — | 25.96% | 16.87% | -2.63% | -8.54% | — | |
| Lowe’s Cos. Inc. | 37.90% | -4.80% | 7.91% | -4.62% | -0.14% | — | |
| TJX Cos. Inc. | 9.43% | 23.36% | 3.04% | 23.97% | 55.57% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Discretionary Distribution & Retail | 0.00% | 25.18% | 13.19% | 0.41% | -4.02% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 0.00% | 9.87% | 9.43% | 4.25% | 1.57% | — | |
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 6,811 ÷ [(67,196 + 58,364) ÷ 2] = 10.85%
2 Click competitor name to see calculations.
The information presents a five-year trend of net operating assets, cash-flow-statement-based aggregate accruals, and the resulting accruals ratio. A notable fluctuation in accruals is observed over the period, warranting further investigation.
- Net Operating Assets
- Net operating assets demonstrate a consistent upward trend throughout the five-year period. Beginning at US$36,047 million, they increased to US$41,998 million by January 2023, experienced a slight decrease to US$41,395 million in January 2024, and then exhibited substantial growth, reaching US$58,364 million in February 2025 and US$67,196 million in February 2026. This suggests overall business expansion and investment in operating capabilities.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals display significant volatility. Starting at US$2,831 million, they increased substantially to US$5,630 million. A marked reversal occurred in January 2024, with accruals becoming negative at US$-1,300 million. This was followed by a dramatic surge to US$16,027 million in February 2025, before decreasing to US$6,811 million in February 2026. These fluctuations suggest considerable changes in the timing of cash receipts and payments relative to reported earnings.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It rose from 8.24% to 14.43% before declining sharply to -3.12%. A substantial increase to 32.13% occurred in February 2025, followed by a decrease to 10.85% in February 2026. An accruals ratio above zero indicates that reported earnings are being supported by accruals, while a negative ratio suggests that cash flow is exceeding reported earnings. The large positive and negative swings in this ratio, particularly the peak in February 2025, could indicate potential earnings management or significant changes in working capital requirements. The negative value in January 2024 is also noteworthy, suggesting a period where cash generation exceeded reported income.
The substantial changes in aggregate accruals and the accruals ratio, especially the large positive value in February 2025, warrant further scrutiny to determine the underlying drivers and assess the quality of reported earnings. A deeper investigation into the components of accruals, such as accounts receivable, inventory, and accounts payable, is recommended.
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