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% | — | — | — | — | |
| Chipotle Mexican Grill Inc. | 18.43% | — | — | — | — | |
| DoorDash, Inc. | 112.44% | — | — | — | — | |
| McDonald’s Corp. | 8.46% | — | — | — | — | |
| Starbucks Corp. | 10.72% | -25.79% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 4.58% | 200.00% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 13.04% | 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.
The analysis of financial reporting quality over the four-year period reveals a significant shift in the relationship between accounting earnings and cash flows, characterized by a transition from positive to deeply negative aggregate accruals.
- Net Operating Assets
- Net operating assets remained relatively stable between 2019 and 2021, peaking at 15,408 million USD in 2020. However, a notable contraction occurred by December 31, 2022, with assets declining to 13,323 million USD, representing a reduction of approximately 13.5% from the 2020 peak.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals exhibited a sharp downward trajectory. While figures remained positive and stable through 2019 and 2020 (688 million USD and 651 million USD respectively), they shifted into negative territory in 2021 at -235 million USD. This trend accelerated aggressively in 2022, reaching -1,850 million USD, indicating a substantial divergence where cash flows significantly exceeded accounting earnings.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the volatility of the aggregate accruals. The ratio began at 4.77% in 2019 and marginally decreased to 4.32% in 2020. A reversal occurred in 2021 as the ratio fell to -1.54%, followed by a steep decline to -12.98% by the end of 2022. This progression suggests a transition from a period of moderate accrual-based earnings to a period of significant negative accruals, which often correlates with an increase in the quality of earnings as cash realizations outpace reported accrual earnings.
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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% | — | — | — | — | |
| Chipotle Mexican Grill Inc. | 30.18% | — | — | — | — | |
| DoorDash, Inc. | -68.90% | — | — | — | — | |
| McDonald’s Corp. | 5.35% | — | — | — | — | |
| Starbucks Corp. | 36.35% | -47.73% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | -8.29% | -11.08% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 1.57% | 21.63% | — | — | — | |
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.
An analysis of the accruals-based reporting quality reveals a period of relative stability followed by a significant divergence between accounting earnings and cash flows in the final year of the observed period. While the early years showed low volatility in the accruals ratio, the most recent year indicates a substantial increase in aggregate accruals relative to net operating assets.
- Net Operating Assets
- Net operating assets remained relatively stable between 2019 and 2021, fluctuating between US$ 14,757 million and US$ 15,408 million. However, a notable contraction occurred by December 31, 2022, with assets decreasing to US$ 13,323 million, representing a decline of approximately 12.2% from the 2021 level.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals exhibited significant volatility over the four-year span. The period began with negative accruals of US$ -237 million in 2019, shifted to a positive US$ 956 million in 2020, and moderated to US$ 114 million in 2021. A sharp escalation is observed in 2022, where aggregate accruals rose to US$ 3,497 million, indicating a substantial increase in non-cash earnings components.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio reflects the relationship between aggregate accruals and net operating assets. The ratio was minimal and negative in 2019 (-1.64%) and remained low in 2020 (6.34%) and 2021 (0.75%). In 2022, the ratio spiked to 24.54%, a significant departure from previous trends. This sharp increase suggests that a larger portion of the reported earnings is comprised of accruals rather than cash flows, which typically warrants further investigation into the quality of earnings and the nature of the non-cash adjustments recorded during that fiscal year.
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