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
McDonald’s Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 59,515) | 55,182) | 56,147) | 50,436) | 53,854) | |
| Less: Cash and equivalents | 774) | 1,085) | 4,579) | 2,584) | 4,709) | |
| Operating assets | 58,741) | 54,097) | 51,568) | 47,852) | 49,145) | |
| Operating Liabilities | ||||||
| Total liabilities | 61,306) | 58,980) | 60,854) | 56,439) | 58,455) | |
| Less: Short-term borrowings and current maturities of long-term debt | —) | —) | 2,192) | —) | —) | |
| Less: Current finance lease liability | 23) | 11) | 46) | 22) | —) | |
| Less: Long-term debt, excluding current maturities | 39,973) | 38,424) | 37,153) | 35,904) | 35,623) | |
| Less: Long-term finance lease liability | 2,329) | 1,770) | 1,530) | 1,300) | —) | |
| Operating liabilities | 18,981) | 18,775) | 19,933) | 19,214) | 22,833) | |
| Net operating assets1 | 39,760) | 35,322) | 31,635) | 28,638) | 26,313) | |
| Balance-sheet-based aggregate accruals2 | 4,438) | 3,687) | 2,997) | 2,325) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 11.82% | 11.01% | 9.94% | 8.46% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | — | — | -468.72% | -68.38% | — | |
| Chipotle Mexican Grill Inc. | -22.48% | 23.30% | 18.41% | 18.43% | — | |
| DoorDash, Inc. | 101.66% | -14.30% | -21.00% | 112.44% | — | |
| Starbucks Corp. | -1.43% | 28.92% | 13.66% | 10.72% | -25.79% | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 16.96% | 5.80% | 3.11% | 4.58% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 16.70% | 12.07% | 12.01% | 13.04% | — | |
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 58,741 – 18,981 = 39,760
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 39,760 – 35,322 = 4,438
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 4,438 ÷ [(39,760 + 35,322) ÷ 2] = 11.82%
4 Click competitor name to see calculations.
The information presents a consistent upward trend in net operating assets over the four-year period, increasing from US$28,638 million in 2022 to US$39,760 million in 2025. Concurrently, balance-sheet-based aggregate accruals also demonstrate a rising pattern, moving from US$2,325 million in 2022 to US$4,438 million in 2025. Most notably, the balance-sheet-based accruals ratio exhibits a steady increase throughout the observed timeframe.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio increased from 8.46% in 2022 to 9.94% in 2023, representing an initial increase of 1.48 percentage points. This upward trajectory continued with increases to 11.01% in 2024 and further to 11.82% in 2025. The ratio’s consistent growth suggests a potentially increasing reliance on accruals relative to net operating assets. The cumulative increase over the four years is 3.36 percentage points.
The parallel increases in both aggregate accruals and net operating assets suggest that the growth in accruals is not necessarily indicative of earnings manipulation, but rather may reflect the normal growth of the business. However, the rising accruals ratio warrants further investigation to determine the underlying drivers of this trend and to assess the quality of earnings. A sustained increase in this ratio could signal potential concerns regarding the sustainability of reported earnings and the potential for future earnings reversals.
Continued monitoring of this ratio, alongside other financial metrics and qualitative factors, is recommended to gain a more comprehensive understanding of the company’s financial reporting quality.
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Cash-Flow-Statement-Based Accruals Ratio
McDonald’s Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | 8,563) | 8,223) | 8,469) | 6,177) | 7,545) | |
| Less: Cash provided by operations | 10,551) | 9,447) | 9,612) | 7,387) | 9,142) | |
| Less: Cash used for investing activities | (3,822) | (5,346) | (3,185) | (2,678) | (2,166) | |
| Cash-flow-statement-based aggregate accruals | 1,834) | 4,122) | 2,041) | 1,469) | 569) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 4.89% | 12.31% | 6.77% | 5.35% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | — | — | -519.27% | -67.03% | — | |
| Chipotle Mexican Grill Inc. | -27.06% | 13.33% | 24.18% | 30.18% | — | |
| DoorDash, Inc. | 62.46% | -63.76% | -64.28% | -68.90% | — | |
| Starbucks Corp. | -8.91% | 9.10% | 12.06% | 36.35% | -47.73% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | -2.92% | -1.61% | -4.40% | -8.29% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 9.87% | 9.43% | 4.25% | 1.57% | — | |
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,834 ÷ [(39,760 + 35,322) ÷ 2] = 4.89%
2 Click competitor name to see calculations.
Net operating assets exhibited a consistent upward trend over the four-year period, increasing from US$28,638 million in 2022 to US$39,760 million in 2025. Concurrently, cash-flow-statement-based aggregate accruals demonstrated volatility, initially rising from US$1,469 million in 2022 to US$4,122 million in 2024, before decreasing to US$1,834 million in 2025. The cash-flow-statement-based accruals ratio, reflecting the relationship between accruals and net operating assets, mirrored this pattern, showing an increase followed by a decline.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio increased from 5.35% in 2022 to 6.77% in 2023, indicating a growing proportion of net operating asset changes explained by accruals. This increase continued significantly in 2024, reaching 12.31%, suggesting a substantial reliance on accruals to explain changes in net operating assets during that year. However, the ratio decreased substantially to 4.89% in 2025, falling below the 2022 level. This suggests a reduced dependence on accruals in 2025, potentially indicating a shift towards more cash-based operations or a different accounting approach.
The significant increase in the accruals ratio in 2024, followed by a decrease in 2025, warrants further investigation. A consistently high accruals ratio can sometimes signal potential earnings management, although further analysis considering industry benchmarks and specific accounting policies is necessary to draw definitive conclusions. The fluctuation in aggregate accruals, independent of the increasing net operating assets, suggests changes in the timing of cash receipts and disbursements, or alterations in working capital management practices.
The decrease in the accruals ratio in the most recent year, 2025, could be a positive sign, indicating improved cash generation relative to reported earnings. However, it is important to determine whether this decrease is sustainable and not a result of one-time events. Continued monitoring of this ratio is recommended to assess the quality of earnings and identify any potential red flags.
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