Stock Analysis on Net

Northrop Grumman Corp. (NYSE:NOC)

$22.49

This company has been moved to the archive! The financial data has not been updated since April 27, 2023.

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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.

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Balance-Sheet-Based Accruals Ratio

Northrop Grumman Corp., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Operating Assets
Total assets
Less: Cash and cash equivalents
Operating assets
Operating Liabilities
Total liabilities
Less: Current portion of long-term debt
Less: Long-term debt, net of current portion
Operating liabilities
 
Net operating assets1
Balance-sheet-based aggregate accruals2
Financial Ratio
Balance-sheet-based accruals ratio3
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
Boeing Co.
Caterpillar Inc.
Eaton Corp. plc
GE Aerospace
Honeywell International Inc.
Lockheed Martin Corp.
RTX Corp.
Balance-Sheet-Based Accruals Ratio, Sector
Capital Goods
Balance-Sheet-Based Accruals Ratio, Industry
Industrials

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
= =

2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= =

3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × ÷ [( + ) ÷ 2] =

4 Click competitor name to see calculations.


Net Operating Assets
The net operating assets demonstrated a consistent upward trend over the four-year period, increasing from 20,453 million US dollars in 2019 to 25,612 million US dollars in 2022. This growth represents a steady expansion in the company's asset base tied to its operations.
Balance-sheet-based Aggregate Accruals
The balance-sheet-based aggregate accruals exhibited significant variability and an increasing magnitude. In 2019, the accruals were negative at -555 million US dollars, shifted to a modest positive amount of 222 million in 2020, then rose sharply to 1,504 million in 2021, and further escalated to 3,433 million in 2022. This pattern indicates a material increase in accruals over time, with a pronounced acceleration in the latter years.
Balance-sheet-based Accruals Ratio
The accruals ratio followed a corresponding escalating trend, starting from -2.68% in 2019, moving to 1.08% in 2020, then climbing to 7.02% in 2021, and culminating at 14.37% in 2022. This reflects an increasing proportion of accruals relative to net operating assets, suggesting a growing reliance on accrual accounting elements in the financial reporting during the period analyzed.
Overall Observations
Collectively, the data reveals a trajectory of expanding net operating assets alongside rising accruals and accrual ratios. The marked growth in accruals, both in absolute terms and as a percentage of net operating assets, may warrant closer monitoring as it could impact the quality and sustainability of reported earnings. The upward accrual trend might suggest more aggressive earnings management or changes in operational dynamics influencing accrual levels.

Cash-Flow-Statement-Based Accruals Ratio

Northrop Grumman Corp., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Net earnings
Less: Net cash provided by operating activities
Less: Net cash (used in) provided by investing activities
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Boeing Co.
Caterpillar Inc.
Eaton Corp. plc
GE Aerospace
Honeywell International Inc.
Lockheed Martin Corp.
RTX Corp.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Capital Goods
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials

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 × ÷ [( + ) ÷ 2] =

2 Click competitor name to see calculations.


The analysis of the financial data over the four-year period reveals distinct and notable trends in net operating assets and cash-flow-statement-based accruals for the company.

Net operating assets
The net operating assets consistently increased each year, starting at US$20,453 million at the end of 2019 and rising to US$25,612 million by the end of 2022. This steady growth suggests an expansion in the company’s operational base and investment in asset-intensive operations over the period analyzed.
Cash-flow-statement-based aggregate accruals
There is a clear upward trend in aggregate accruals, shifting from a negative value of -US$842 million in 2019 to a positive US$3,236 million by the end of 2022. The transition from negative to positive values implies a change in the company’s cash flow dynamics and potentially more aggressive revenue recognition or changes in working capital components.
Cash-flow-statement-based accruals ratio
The accruals ratio correlates with the aggregate accruals trend, starting from -4.06% in 2019 and progressively increasing to 13.54% in 2022. This rising ratio indicates that accruals form a growing proportion of net operating assets, which may indicate increasing earnings management risks or changes in accounting practices affecting the quality of earnings.

Overall, the data points to a company expanding its net operating assets while showing increasing accruals both in absolute terms and relative to net operating assets. These patterns warrant further examination to understand the underlying drivers and implications for financial reporting quality.