Stock Analysis on Net

Home Depot Inc. (NYSE:HD)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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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Balance-Sheet-Based Accruals Ratio

Home Depot Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Feb 2, 2025 Jan 28, 2024 Jan 29, 2023 Jan 30, 2022 Jan 31, 2021 Feb 2, 2020
Operating Assets
Total assets
Less: Cash and cash equivalents
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term debt
Less: Current installments of long-term debt
Less: Long-term debt, excluding current installments
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Amazon.com Inc.
Lowe’s Cos. Inc.
TJX Cos. Inc.
Balance-Sheet-Based Accruals Ratio, Sector
Consumer Discretionary Distribution & Retail
Balance-Sheet-Based Accruals Ratio, Industry
Consumer Discretionary

Based on: 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), 10-K (reporting date: 2020-02-02).

1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= =

2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= =

3 2025 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.


The data reflects several notable trends in the financial reporting quality measures over the five-year period under review.

Net operating assets
This metric shows a consistent upward trajectory from 32,642 million USD in early 2021 to 58,364 million USD by early 2025. The increase is steady from 2021 through 2023, with a slight dip observed in early 2024, followed by a significant jump in 2025. Such growth indicates an expansion in the company's operating asset base over the duration analyzed.
Balance-sheet-based aggregate accruals
This line item exhibits considerable volatility. Initial values show a decline from 6,408 million USD in 2021 to 3,405 million USD in 2022, followed by a rebound to 5,951 million USD in 2023. A notable negative value of -603 million USD is recorded in 2024, indicating that accruals decreased below zero, which may suggest adjustments or reversals during that period. In 2025, there is a sharp increase to 16,969 million USD, which is the highest recorded value, denoting a substantial change in accruals behavior.
Balance-sheet-based accruals ratio
There is a corresponding fluctuation reflected in the accruals ratio, which declines sharply from 21.77% in 2021 to 9.91% in 2022, rises again to 15.25% in 2023, then turns negative to -1.45% in 2024, before soaring significantly to 34.02% in 2025. The negative ratio in 2024 signals a period where accruals effectively reduced net operating assets. The substantial increase in 2025 suggests heightened accruals relative to net operating assets, which could imply a change in earnings quality or accounting practices in that year.

Overall, the data points to an expanding operational asset base accompanied by significant fluctuations in accrual activity, particularly noticeable in 2024 and 2025. The negative accrual ratio in 2024 and subsequent spike in 2025 warrant further investigation to understand underlying operational or accounting factors affecting financial reporting quality.


Cash-Flow-Statement-Based Accruals Ratio

Home Depot Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Feb 2, 2025 Jan 28, 2024 Jan 29, 2023 Jan 30, 2022 Jan 31, 2021 Feb 2, 2020
Net earnings
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
Amazon.com Inc.
Lowe’s Cos. Inc.
TJX Cos. Inc.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Consumer Discretionary Distribution & Retail
Cash-Flow-Statement-Based Accruals Ratio, Industry
Consumer Discretionary

Based on: 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), 10-K (reporting date: 2020-02-02).

1 2025 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 analysis of the annual financial reporting quality measures reveals several significant trends over the five-year period.

Net Operating Assets
The net operating assets increased consistently from US$32,642 million in 2021 to US$58,364 million in 2025. This represents an overall upward trajectory with a particularly notable rise in the final year, indicating substantial growth in assets involved in the company's core operations.
Cash-flow-statement-based Aggregate Accruals
The aggregate accruals showed notable volatility throughout the period. Beginning at US$4,197 million in 2021, the figure decreased to US$2,831 million in 2022, then sharply increased to US$5,630 million in 2023. A significant decline followed in 2024 when the value turned negative at -US$1,300 million. In 2025, a dramatic surge to US$16,027 million occurred. This fluctuation suggests variability in the timing differences between accounting earnings and cash flows, which could reflect changes in earnings quality or operational adjustments.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, expressed as a percentage of net operating assets, mirrored the fluctuations seen in aggregate accruals. It started at 14.26% in 2021, then declined to 8.24% in 2022, before increasing again to 14.43% in 2023. A negative ratio of -3.12% in 2024 indicates a reversal, aligning with the negative aggregate accruals of that year. In 2025, the ratio escalated to 32.13%, the highest in the period, pointing to a larger proportion of accruals relative to net operating assets.

Overall, the data depicts a growing asset base with considerable fluctuations in accrual levels and ratios over five years. The negative accrual value and ratio in 2024 is a distinctive occurrence amid otherwise positive figures, which may warrant further investigation. The sharp rise in both aggregate accruals and the accruals ratio in 2025 suggests an increase in earnings management risk or changes in operational cash flow timing that could impact financial reporting quality in that year.