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
Newmont Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 55,506) | 38,482) | 40,564) | 41,369) | 39,974) | |
| Less: Cash and cash equivalents | 3,002) | 2,877) | 4,992) | 5,540) | 2,243) | |
| Less: Time deposits and other investments | 23) | 880) | 82) | 290) | 237) | |
| Operating assets | 52,481) | 34,725) | 35,490) | 35,539) | 37,494) | |
| Operating Liabilities | ||||||
| Total liabilities | 26,301) | 18,949) | 18,703) | 17,490) | 17,557) | |
| Less: Current finance lease and other financing obligations | 114) | 96) | 106) | 106) | 100) | |
| Less: Current debt | 1,923) | —) | 87) | 551) | —) | |
| Less: Non-current debt | 6,951) | 5,571) | 5,565) | 5,480) | 6,138) | |
| Less: Non-current finance lease and other financing obligations | 448) | 465) | 544) | 565) | 596) | |
| Operating liabilities | 16,865) | 12,817) | 12,401) | 10,788) | 10,723) | |
| Net operating assets1 | 35,616) | 21,908) | 23,089) | 24,751) | 26,771) | |
| Balance-sheet-based aggregate accruals2 | 13,708) | (1,181) | (1,662) | (2,020) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 47.66% | -5.25% | -6.95% | -7.84% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Freeport-McMoRan Inc. | 12.18% | 10.97% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Materials | 5.47% | 1.53% | 200.00% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 52,481 – 16,865 = 35,616
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 35,616 – 21,908 = 13,708
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 13,708 ÷ [(35,616 + 21,908) ÷ 2] = 47.66%
4 Click competitor name to see calculations.
An analysis of the financial reporting quality from 2020 to 2023 reveals a significant shift in the accruals profile. For the first three years of the period, the company maintained negative aggregate accruals and a declining trend in net operating assets. This pattern reversed sharply in 2023, characterized by a substantial expansion of the balance sheet and a dramatic increase in the accruals ratio.
- Net Operating Assets Trend
- Net operating assets experienced a steady contraction between 2020 and 2022, decreasing from 24,751 million USD to 21,908 million USD. However, a sharp increase occurred in 2023, with assets rising to 35,616 million USD, representing a growth of approximately 62.6% over the previous year.
- Aggregate Accruals Movement
- Balance-sheet-based aggregate accruals remained negative from 2020 through 2022, moving from -2,020 million USD to -1,181 million USD. This indicates a period where cash flows likely exceeded reported accounting earnings. In 2023, a pivot occurred as aggregate accruals shifted to a positive 13,708 million USD, marking a significant departure from the prior three-year trend.
- Accruals Ratio Interpretation
- The accruals ratio remained negative and relatively stable from 2020 (-7.84%) to 2022 (-5.25%), which is typically associated with conservative accounting and high earnings quality. The ratio spiked to 47.66% in 2023. Such a substantial increase suggests that a large portion of the reported earnings for that period is not supported by cash flows, potentially indicating a decline in reporting quality or the impact of significant non-cash accounting adjustments.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Cash-Flow-Statement-Based Accruals Ratio
Newmont Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Newmont stockholders | (2,494) | (429) | 1,166) | 2,829) | 2,805) | |
| Less: Net cash provided by operating activities | 2,754) | 3,198) | 4,266) | 4,890) | 2,876) | |
| Less: Net cash (used in) provided by investing activities | (1,002) | (2,983) | (1,868) | 166) | (1,226) | |
| Cash-flow-statement-based aggregate accruals | (4,246) | (644) | (1,232) | (2,227) | 1,155) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -14.76% | -2.86% | -5.15% | -8.64% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Freeport-McMoRan Inc. | 5.26% | 6.85% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Materials | 3.08% | 1.97% | -9.09% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -4,246 ÷ [(35,616 + 21,908) ÷ 2] = -14.76%
2 Click competitor name to see calculations.
Analysis of the accruals data reveals a fluctuating relationship between operating assets and cash-flow-based accruals over the four-year period ending December 31, 2023. The consistent presence of negative accruals suggests a reporting environment where cash flows have generally exceeded accrual-based earnings.
- Net Operating Assets Trend
- Net operating assets experienced a period of gradual contraction between 2020 and 2022, declining from 24,751 million US$ to 21,908 million US$. This trend was abruptly reversed in 2023, with a substantial increase to 35,616 million US$, representing a significant expansion of the asset base.
- Cash-Flow-Based Aggregate Accruals
- Aggregate accruals remained negative throughout the analyzed period. From 2020 to 2022, there was a trend toward zero, with values rising from -2,227 million US$ to -644 million US$. However, 2023 saw a sharp divergence, with aggregate accruals dropping to -4,246 million US$, marking the most significant negative deviation in the period.
- Accruals Ratio Dynamics
- The cash-flow-statement-based accruals ratio mirrored the movement of aggregate accruals, moving from -8.64% in 2020 to a peak of -2.86% in 2022. In 2023, the ratio shifted sharply to -14.76%. This indicates that despite the significant increase in net operating assets, the gap between cash flow and accrual earnings widened considerably, suggesting a highly conservative earnings quality or substantial non-accrual cash movements during the 2023 fiscal year.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?