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
Nike Inc., balance sheet computation of aggregate accruals
US$ in millions
| May 31, 2026 | May 31, 2025 | May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 38,410) | 36,579) | 38,110) | 37,531) | 40,321) | 37,740) | |
| Less: Cash and equivalents | 7,563) | 7,464) | 9,860) | 7,441) | 8,574) | 9,889) | |
| Less: Short-term investments | 1,464) | 1,687) | 1,722) | 3,234) | 4,423) | 3,587) | |
| Operating assets | 29,383) | 27,428) | 26,528) | 26,856) | 27,324) | 24,264) | |
| Operating Liabilities | |||||||
| Total liabilities | 23,545) | 23,366) | 23,680) | 23,527) | 25,040) | 24,973) | |
| Less: Current portion of long-term debt | 2,000) | —) | 1,000) | —) | 500) | —) | |
| Less: Long-term debt, excluding current portion | 5,942) | 7,961) | 7,903) | 8,927) | 8,920) | 9,413) | |
| Operating liabilities | 15,603) | 15,405) | 14,777) | 14,600) | 15,620) | 15,560) | |
| Net operating assets1 | 13,780) | 12,023) | 11,751) | 12,256) | 11,704) | 8,704) | |
| Balance-sheet-based aggregate accruals2 | 1,757) | 272) | (505) | 552) | 3,000) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 13.62% | 2.29% | -4.21% | 4.61% | 29.40% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| lululemon athletica inc. | 29.66% | 16.25% | -0.29% | 29.58% | 4.99% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Durables & Apparel | 0.00% | 4.44% | -3.65% | 7.77% | 26.37% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 0.00% | 16.70% | 12.07% | 12.01% | 13.04% | — | |
Based on: 10-K (reporting date: 2026-05-31), 10-K (reporting date: 2025-05-31), 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= 29,383 – 15,603 = 13,780
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 13,780 – 12,023 = 1,757
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,757 ÷ [(13,780 + 12,023) ÷ 2] = 13.62%
4 Click competitor name to see calculations.
An analysis of financial reporting quality between 2022 and 2026 reveals significant volatility in the relationship between reported earnings and cash flows, as evidenced by the fluctuations in balance-sheet-based accruals.
- Net Operating Assets Trend
- Net operating assets remained relatively stable from 2022 through 2025, fluctuating within a narrow range between US$ 11,704 million and US$ 12,256 million. A marked increase is observed in 2026, with assets rising to US$ 13,780 million, indicating a substantial expansion of the operating asset base in the final year of the period.
- Aggregate Accruals Behavior
- Balance-sheet-based aggregate accruals exhibited a sharp downward trajectory in the early years, falling from US$ 3,000 million in 2022 to US$ 552 million in 2023, and reaching a negative value of US$ -505 million in 2024. This trend reversed starting in 2025, with accruals climbing back to US$ 1,757 million by 2026.
- Accruals Ratio and Earnings Quality
- The balance-sheet-based accruals ratio indicates a significant shift in earnings quality. The high ratio of 29.40% in 2022 suggests that a substantial portion of reported earnings was derived from non-cash accruals. The subsequent drop to -4.21% in 2024 indicates a period where cash flows likely exceeded accounting earnings, often a sign of high earnings quality. However, the rise to 13.62% by 2026 suggests a returning reliance on accruals to support reported financial results.
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Cash-Flow-Statement-Based Accruals Ratio
Nike Inc., cash flow statement computation of aggregate accruals
US$ in millions
| May 31, 2026 | May 31, 2025 | May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income | 3,108) | 3,219) | 5,700) | 5,070) | 6,046) | 5,727) | |
| Less: Cash provided by operations | 2,868) | 3,698) | 7,429) | 5,841) | 5,188) | 6,657) | |
| Less: Cash (used) provided by investing activities | (488) | (275) | 894) | 564) | (1,524) | (3,800) | |
| Cash-flow-statement-based aggregate accruals | 728) | (204) | (2,623) | (1,335) | 2,382) | 2,870) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 5.64% | -1.72% | -21.85% | -11.14% | 23.34% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| lululemon athletica inc. | 23.25% | 15.72% | -4.61% | 26.38% | 0.98% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Durables & Apparel | 0.00% | 0.97% | -19.40% | -6.39% | 20.57% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | 0.00% | 9.87% | 9.43% | 4.25% | 1.57% | — | |
Based on: 10-K (reporting date: 2026-05-31), 10-K (reporting date: 2025-05-31), 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31).
1 2026 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 728 ÷ [(13,780 + 12,023) ÷ 2] = 5.64%
2 Click competitor name to see calculations.
An analysis of the financial data from May 31, 2022, to May 31, 2026, reveals significant volatility in the relationship between reported earnings and operating cash flows. The fluctuations in the cash-flow-statement-based accruals ratio indicate a shifting pattern in reporting quality and the composition of operating assets over the five-year period.
- Net Operating Assets Trends
- Net operating assets remained relatively stable between 2022 and 2025, moving within a range of US$ 11,704 million to US$ 12,256 million. A significant upward shift occurred in the final year of the period, with net operating assets increasing to US$ 13,780 million by May 31, 2026, representing a notable expansion of the asset base.
- Aggregate Accruals Analysis
- Cash-flow-statement-based aggregate accruals experienced a sharp reversal following May 2022. After starting at a positive US$ 2,382 million, accruals turned negative for three consecutive years, reaching a trough of -US$ 2,623 million in 2024. This negative trend moderated in 2025 (-US$ 204 million) before returning to a positive value of US$ 728 million in 2026.
- Accruals Ratio and Reporting Quality
- The accruals ratio mirrors the volatility of aggregate accruals, starting at a high of 23.34% in 2022. The shift to negative ratios from 2023 (-11.14%) to 2025 (-1.72%), with a peak negative of -21.85% in 2024, suggests a period where cash flows from operations exceeded reported earnings, which is generally associated with higher earnings quality or conservative accounting. The return to a positive ratio of 5.64% in 2026 indicates a shift back toward accrual-based earnings, although the magnitude is significantly lower than that observed in 2022.
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