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
Marathon Oil Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 16,994) | 17,956) | 20,245) | 21,321) | 22,012) | |
| Less: Cash and cash equivalents | 580) | 742) | 858) | 1,462) | 563) | |
| Operating assets | 16,414) | 17,214) | 19,387) | 19,859) | 21,449) | |
| Operating Liabilities | ||||||
| Total liabilities | 6,308) | 7,395) | 8,092) | 9,193) | 10,304) | |
| Less: Current portion of long-term finance lease liability | 6) | —) | —) | —) | —) | |
| Less: Long-term debt due within one year | 36) | —) | —) | —) | —) | |
| Less: Long-term debt, excluding due within one year | 3,978) | 5,404) | 5,501) | 5,499) | 5,494) | |
| Less: Long-term finance lease liability, excluding current portion | 24) | —) | —) | —) | —) | |
| Operating liabilities | 2,264) | 1,991) | 2,591) | 3,694) | 4,810) | |
| Net operating assets1 | 14,150) | 15,223) | 16,796) | 16,165) | 16,639) | |
| Balance-sheet-based aggregate accruals2 | (1,073) | (1,573) | 631) | (474) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -7.31% | -9.83% | 3.83% | -2.89% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| Exxon Mobil Corp. | — | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 200.00% | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | 200.00% | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Net operating assets = Operating assets – Operating liabilities
= 16,414 – 2,264 = 14,150
2 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2021 – Net operating assets2020
= 14,150 – 15,223 = -1,073
3 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,073 ÷ [(14,150 + 15,223) ÷ 2] = -7.31%
4 Click competitor name to see calculations.
The financial data indicates a period of volatility in reporting quality and a general contraction of the operating asset base between 2018 and 2021.
- Net Operating Assets Trend
- Net operating assets experienced a slight increase from 16,165 million US dollars in 2018 to a peak of 16,796 million in 2019. This was followed by a consistent decline, dropping to 15,223 million in 2020 and further to 14,150 million by the end of 2021, signaling a reduction in the net assets employed in operations.
- Aggregate Accruals Movement
- Balance-sheet-based aggregate accruals showed significant fluctuations. After starting at -474 million in 2018, the figure turned positive in 2019 at 631 million. A substantial shift occurred in 2020, with accruals falling sharply to -1,573 million, before slightly recovering to -1,073 million in 2021.
- Accruals Ratio Interpretation
- The balance-sheet-based accruals ratio mirrored the volatility of the aggregate accruals, moving from -2.89% in 2018 to 3.83% in 2019. The most pronounced change occurred in 2020, where the ratio reached -9.83%, suggesting that cash flows significantly exceeded reported earnings during that period. The ratio remained negative in 2021 at -7.31%, indicating a persistent trend of negative accruals relative to the operating asset base.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Cash-Flow-Statement-Based Accruals Ratio
Marathon Oil Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Net income (loss) | 946) | (1,451) | 480) | 1,096) | (5,723) | |
| Less: Net cash provided by operating activities | 3,239) | 1,473) | 2,749) | 3,234) | 1,988) | |
| Less: Net cash used in investing activities | (1,010) | (1,303) | (2,818) | (1,470) | (2,044) | |
| Cash-flow-statement-based aggregate accruals | (1,283) | (1,621) | 549) | (668) | (5,667) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -8.74% | -10.13% | 3.33% | -4.07% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| Exxon Mobil Corp. | — | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | -10.40% | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | -10.60% | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,283 ÷ [(14,150 + 15,223) ÷ 2] = -8.74%
2 Click competitor name to see calculations.
The financial reporting quality from 2018 to 2021 is characterized by significant volatility in aggregate accruals and a general contraction in net operating assets. While the metrics showed a brief positive shift in 2019, the subsequent years were defined by substantial negative accruals and a declining asset base.
- Net Operating Assets Trend
- Net operating assets grew slightly from 16,165 million US$ in 2018 to a peak of 16,796 million US$ in 2019. Following this peak, a consistent downward trend is observed, with assets decreasing to 15,223 million US$ in 2020 and further declining to 14,150 million US$ by December 31, 2021.
- Aggregate Accruals Volatility
- Cash-flow-statement-based aggregate accruals exhibited sharp fluctuations. The figures transitioned from -668 million US$ in 2018 to a positive 549 million US$ in 2019. This was followed by a steep decline to -1,621 million US$ in 2020, before moderating slightly to -1,283 million US$ in 2021.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio reflects the high volatility of the aggregate accruals relative to the asset base. The ratio moved from -4.07% in 2018 to 3.33% in 2019, then dropped significantly to -10.13% in 2020. In 2021, the ratio remained deeply negative at -8.74%. The consistent presence of negative ratios in 2018, 2020, and 2021 indicates that cash flows exceeded accrual-based earnings during those periods, which is typically associated with higher earnings quality and a lower likelihood of aggressive accounting practices.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?