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
Las Vegas Sands Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 22,039) | 20,059) | 20,807) | 23,199) | 22,547) | |
| Less: Cash and cash equivalents | 6,311) | 1,854) | 2,121) | 4,226) | 4,648) | |
| Less: Restricted cash and cash equivalents | —) | 16) | 16) | 16) | 13) | |
| Operating assets | 15,728) | 18,189) | 18,670) | 18,957) | 17,886) | |
| Operating Liabilities | ||||||
| Total liabilities | 18,383) | 17,811) | 17,269) | 16,692) | 15,802) | |
| Less: Current maturities of long-term debt | 2,031) | 74) | 76) | 70) | 111) | |
| Less: Long-term debt, excluding current maturities | 13,947) | 14,721) | 13,931) | 12,422) | 11,874) | |
| Operating liabilities | 2,405) | 3,016) | 3,262) | 4,200) | 3,817) | |
| Net operating assets1 | 13,323) | 15,173) | 15,408) | 14,757) | 14,069) | |
| Balance-sheet-based aggregate accruals2 | (1,850) | (235) | 651) | 688) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -12.98% | -1.54% | 4.32% | 4.77% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | -68.38% | 2.00% | — | — | — | |
| Chipotle Mexican Grill Inc. | 18.43% | 13.32% | — | — | — | |
| DoorDash, Inc. | 112.44% | 126.46% | — | — | — | |
| McDonald’s Corp. | 8.46% | 0.56% | — | — | — | |
| Starbucks Corp. | 10.72% | -25.79% | 45.93% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 4.58% | 1.21% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 13.04% | 12.78% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= 15,728 – 2,405 = 13,323
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= 13,323 – 15,173 = -1,850
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,850 ÷ [(13,323 + 15,173) ÷ 2] = -12.98%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets showed a slight increase from 14,757 million US dollars in 2019 to 15,408 million US dollars in 2020. However, there was a minor decline to 15,173 million in 2021, followed by a more significant decrease to 13,323 million in 2022. This indicates a downward trend in the company’s net operating assets from 2020 onwards, suggesting a possible reduction in the asset base or changes in working capital components.
- Balance-sheet-based Aggregate Accruals
- The balance-sheet-based aggregate accruals were positive in 2019 and 2020, measuring 688 million and 651 million US dollars respectively. In 2021, there was a reversal, with accruals turning negative to -235 million, and the decline continued more sharply to -1,850 million in 2022. This shift from positive to significantly negative accruals may indicate changes in earnings management practices or operational cash flow dynamics.
- Balance-sheet-based Accruals Ratio
- The accruals ratio decreased steadily over the four-year period, starting from 4.77% in 2019 and dropping slightly to 4.32% in 2020. The ratio turned negative in 2021 at -1.54% and further declined substantially to -12.98% in 2022. The negative and accelerating decline in the accruals ratio suggests increasing divergence between accrual accounting and cash flows, possibly reflecting deteriorations in earnings quality or more conservative recognition of accruals in the later years.
- Overall Assessment
- The data indicate a deterioration in the financial reporting quality metric over the observed periods. The initial stability and slight growth in net operating assets gave way to declines, while the accruals measures reversed from positive to increasingly negative values. The pronounced drop in the accruals ratio by 2022 suggests heightened caution or potential issues with the sustainability of reported earnings. These trends warrant further investigation into the underlying causes, including operational performance, accounting policy changes, or external economic factors affecting the company’s financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Las Vegas Sands Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Las Vegas Sands Corp. | 1,832) | (961) | (1,685) | 2,698) | 2,413) | |
| Less: Net cash generated from (used in) operating activities | (944) | (243) | (1,312) | 3,038) | 4,701) | |
| Less: Net cash used in investing activities | (721) | (832) | (1,329) | (103) | (930) | |
| Cash-flow-statement-based aggregate accruals | 3,497) | 114) | 956) | (237) | (1,358) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 24.54% | 0.75% | 6.34% | -1.64% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | -67.03% | -11.13% | — | — | — | |
| Chipotle Mexican Grill Inc. | 30.18% | -9.35% | — | — | — | |
| DoorDash, Inc. | -68.90% | 159.10% | — | — | — | |
| McDonald’s Corp. | 5.35% | 2.17% | — | — | — | |
| Starbucks Corp. | 36.35% | -47.73% | 36.84% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | -8.29% | -5.57% | -34.42% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 1.57% | 11.50% | 6.55% | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 3,497 ÷ [(13,323 + 15,173) ÷ 2] = 24.54%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrated a gradual decrease over the four-year period. Starting at 14,757 million US dollars in 2019, the figure increased slightly to 15,408 million in 2020, followed by a mild decline to 15,173 million in 2021, and eventually dropped more noticeably to 13,323 million in 2022. This represents an overall declining trend in net operating assets, with a significant reduction observed in the last year.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals showed considerable fluctuation throughout the period. The value was negative at -237 million US dollars in 2019, indicating possible conservative accrual accounting or cash flow improvements relative to earnings. This sharply reversed to a positive 956 million in 2020, dropped again to a modest 114 million in 2021, and then surged dramatically to 3,497 million in 2022. The data indicates increasing variability and a substantial increase in accruals by the final year, which may reflect changes in accounting estimates or revenue recognition.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio displayed a similar pattern of volatility, moving from a negative ratio of -1.64% in 2019 to a significant positive 6.34% in 2020. In 2021, the ratio decreased to 0.75%, indicating a decrease in accruals relative to operating assets or cash flow. However, in 2022, the ratio increased markedly to 24.54%, demonstrating a substantial rise in accrual activity relative to net operating assets. This considerable increase signals a notable shift in financial reporting quality or accrual management during the last reported period.