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
ONEOK Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 24,379,094) | 23,621,613) | 23,078,754) | 21,812,121) | 18,231,671) | |
| Less: Cash and cash equivalents | 220,227) | 146,391) | 524,496) | 20,958) | 11,975) | |
| Operating assets | 24,158,867) | 23,475,222) | 22,554,258) | 21,791,163) | 18,219,696) | |
| Operating Liabilities | ||||||
| Total liabilities | 17,885,209) | 17,606,450) | 17,036,356) | 15,586,170) | 11,652,128) | |
| Less: Current maturities of long-term debt | 925,000) | 895,814) | 7,650) | 7,650) | 507,650) | |
| Less: Short-term borrowings | —) | —) | —) | 220,000) | —) | |
| Less: Current finance lease liability | 2,954) | 2,584) | 2,153) | 1,949) | 1,765) | |
| Less: Long-term debt, excluding current maturities | 12,695,834) | 12,747,636) | 14,228,421) | 12,479,757) | 8,873,334) | |
| Less: Noncurrent finance lease liability | 19,299) | 21,082) | 22,143) | 24,296) | 26,244) | |
| Operating liabilities | 4,242,122) | 3,939,334) | 2,775,989) | 2,852,518) | 2,243,135) | |
| Net operating assets1 | 19,916,745) | 19,535,888) | 19,778,269) | 18,938,645) | 15,976,561) | |
| Balance-sheet-based aggregate accruals2 | 380,857) | (242,381) | 839,624) | 2,962,084) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 1.93% | -1.23% | 4.34% | 16.97% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | 0.03% | -3.43% | — | — | — | |
| ConocoPhillips | -5.86% | 44.50% | — | — | — | |
| Exxon Mobil Corp. | -1.19% | -4.87% | — | — | — | |
| Occidental Petroleum Corp. | 3.65% | -11.15% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | -0.84% | -0.16% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | -0.61% | -0.16% | 200.00% | — | — | |
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
= 24,158,867 – 4,242,122 = 19,916,745
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= 19,916,745 – 19,535,888 = 380,857
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 380,857 ÷ [(19,916,745 + 19,535,888) ÷ 2] = 1.93%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrate a generally stable trend over the four-year period, with slight fluctuations. Starting at approximately US$18.94 billion in 2019, the figure increases to about US$19.78 billion in 2020. However, it declines marginally in 2021 to around US$19.54 billion before rising again to nearly US$19.92 billion in 2022. This suggests a relatively consistent investment in operating assets, with minor variations potentially influenced by operational or investment activities.
- Balance-sheet-based Aggregate Accruals
- There is notable volatility in balance-sheet-based aggregate accruals over the period. Accruals are significantly positive at approximately US$2.96 billion in 2019, sharply decrease to roughly US$840 million in 2020, then turn negative to about negative US$242 million in 2021 before reverting to a positive US$381 million in 2022. This variability may reflect changes in earnings quality, adjustments in working capital components, or shifts in accounting policies impacting accrual accounting.
- Balance-sheet-based Accruals Ratio
- The accruals ratio shows a clear downward trend from 2019 through 2021, moving from 16.97% in 2019 to 4.34% in 2020, and turning slightly negative at -1.23% by 2021. In 2022, the ratio rebounds to a positive 1.93%. This pattern indicates a reduction in the magnitude of accruals relative to net operating assets until 2021, followed by a modest recovery in 2022. The negative ratio in 2021 may imply an unusual period where accrual adjustments were reducing earnings or assets, affecting the quality and sustainability of reported earnings during that year.
- Overall Insights
- The data reveals a period of fluctuating accrual measures while operating assets remain relatively stable. The decrease in accrual levels and ratio until 2021, along with the transient negative accrual value, could point to a temporary deterioration in earnings quality during that year, possibly linked to economic or operational challenges. The partial recovery in accrual levels in 2022 suggests some normalization of accounting practices or improvements in working capital management. Maintaining close observation of such trends is crucial as they can signal changes in earnings quality and financial reporting reliability.
Cash-Flow-Statement-Based Accruals Ratio
ONEOK Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net income attributable to ONEOK | 1,722,221) | 1,499,706) | 612,809) | 1,278,577) | 1,151,703) | |
| Less: Cash provided by operating activities | 2,905,955) | 2,546,272) | 1,899,068) | 1,946,779) | 2,186,719) | |
| Less: Cash used in investing activities | (1,139,236) | (665,292) | (2,270,529) | (3,768,758) | (2,114,888) | |
| Cash-flow-statement-based aggregate accruals | (44,498) | (381,274) | 984,270) | 3,100,556) | 1,079,872) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -0.23% | -1.94% | 5.08% | 17.76% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | -1.22% | -4.57% | — | — | — | |
| ConocoPhillips | -1.56% | -0.78% | — | — | — | |
| Exxon Mobil Corp. | -2.93% | -6.69% | — | — | — | |
| Occidental Petroleum Corp. | 2.84% | -13.52% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | -1.62% | -6.08% | -20.08% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | -1.32% | -6.12% | -23.36% | — | — | |
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 × -44,498 ÷ [(19,916,745 + 19,535,888) ÷ 2] = -0.23%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets showed a general upward trend over the four-year period. Beginning at approximately 18.94 billion US dollars at the end of 2019, the figure increased to nearly 19.78 billion in 2020. A slight decline occurred in 2021 to around 19.54 billion, followed by a rebound to approximately 19.92 billion by the end of 2022. Overall, this indicates a relatively stable asset base with minor fluctuations.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals experienced significant fluctuations. In 2019, the value was substantially positive at around 3.1 billion US dollars, sharply decreasing to just under 1 billion in 2020. The figure then shifted to negative territory in 2021 with approximately -381 million, and it remained negative but closer to zero at approximately -44 million in 2022. This suggests a decreasing reliance on accruals over the period, reflecting improved cash flow quality or changes in accounting practices affecting accruals.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio followed a similar pattern to aggregate accruals. It started at a high of 17.76% in 2019, indicating a significant portion of net operating assets were funded by accruals. This ratio then dropped markedly to 5.08% in 2020, turning negative to -1.94% in 2021 and improving slightly to -0.23% in 2022. The negative values in the last two years suggest the company may have faced more cash inflows relative to accruals, pointing to improved earnings quality and less aggressive accrual accounting.