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
Occidental Petroleum Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 85,445) | 74,008) | 72,609) | 75,036) | 80,064) | |
| Less: Cash and cash equivalents | 2,132) | 1,426) | 984) | 2,764) | 2,008) | |
| Operating assets | 83,313) | 72,582) | 71,625) | 72,272) | 78,056) | |
| Operating Liabilities | ||||||
| Total liabilities | 50,965) | 43,659) | 42,524) | 54,709) | 61,491) | |
| Less: Current maturities of long-term debt | 1,138) | 1,202) | 165) | 186) | 440) | |
| Less: Long-term debt, net, excluding current maturities | 24,978) | 18,536) | 19,670) | 29,431) | 35,745) | |
| Operating liabilities | 24,849) | 23,921) | 22,689) | 25,092) | 25,306) | |
| Net operating assets1 | 58,464) | 48,661) | 48,936) | 47,180) | 52,750) | |
| Balance-sheet-based aggregate accruals2 | 9,803) | (275) | 1,756) | (5,570) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 18.30% | -0.56% | 3.65% | -11.15% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | -2.10% | 5.21% | 0.03% | — | — | |
| ConocoPhillips | 29.59% | 10.61% | -5.86% | — | — | |
| Exxon Mobil Corp. | 26.07% | 3.91% | -1.19% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 16.86% | 5.28% | -1.34% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | 16.00% | 5.39% | -1.05% | 200.00% | — | |
Based on: 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), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 83,313 – 24,849 = 58,464
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 58,464 – 48,661 = 9,803
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 9,803 ÷ [(58,464 + 48,661) ÷ 2] = 18.30%
4 Click competitor name to see calculations.
The analysis of financial reporting quality reveals significant volatility in the balance-sheet-based accruals ratio from 2021 to 2024, culminating in a substantial increase in the most recent period.
- Net Operating Assets
- Net operating assets remained relatively stable between 2021 and 2023, fluctuating within a narrow range between US$ 47,180 million and US$ 48,936 million. A notable expansion occurred in 2024, where assets increased to US$ 58,464 million, marking a significant growth in the company's operating asset base.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals demonstrated a volatile trend over the four-year period. The values shifted from a negative US$ 5,570 million in 2021 to a positive US$ 1,756 million in 2022, before retreating to a slightly negative US$ 275 million in 2023. The period ending December 31, 2024, saw a sharp reversal to a positive US$ 9,803 million.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio exhibited extreme variance, starting at -11.15% in 2021 and reaching a near-neutral -0.56% by 2023. In 2024, the ratio surged to 18.30%. This sharp increase indicates that a larger proportion of reported earnings is comprised of non-cash accruals relative to the net operating asset base. Such a transition from negative to high positive accruals suggests a fundamental shift in the relationship between accounting earnings and cash flow, potentially reflecting aggressive asset growth or changes in the timing of revenue and expense recognition.
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Cash-Flow-Statement-Based Accruals Ratio
Occidental Petroleum Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Occidental | 3,056) | 4,696) | 13,304) | 2,322) | (14,831) | |
| Less: Net cash provided by operating activities | 11,739) | 12,308) | 16,810) | 10,253) | 3,842) | |
| Less: Net cash used by investing activities | (14,590) | (6,980) | (4,872) | (1,174) | (778) | |
| Cash-flow-statement-based aggregate accruals | 5,907) | (632) | 1,366) | (6,757) | (17,895) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 11.03% | -1.30% | 2.84% | -13.52% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | -2.83% | 0.58% | -1.22% | — | — | |
| ConocoPhillips | 0.37% | 5.11% | -1.56% | — | — | |
| Exxon Mobil Corp. | -0.55% | -0.04% | -2.93% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | -1.20% | 0.87% | -2.11% | -10.40% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | -0.95% | 0.89% | -1.75% | -10.60% | — | |
Based on: 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), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 5,907 ÷ [(58,464 + 48,661) ÷ 2] = 11.03%
2 Click competitor name to see calculations.
The analysis of financial reporting quality between 2021 and 2024 reveals a volatile relationship between accrual-based earnings and cash flow, characterized by significant fluctuations in the aggregate accruals ratio and a sharp increase in net operating assets in the final period.
- Cash-Flow-Statement-Based Accruals Ratio
- A high degree of volatility is observed in the accruals ratio over the four-year period. In 2021, the ratio was deeply negative at -13.52%, suggesting that cash flows significantly exceeded accrual-based earnings, which typically indicates high earnings quality. This was followed by a period of relative stability and convergence toward zero in 2022 (2.84%) and 2023 (-1.30%), indicating a closer alignment between reported earnings and actual cash generation. However, 2024 saw a sharp reversal to 11.03%, signaling a substantial increase in accruals relative to net operating assets, which may indicate a decrease in the immediate cash-convertibility of reported earnings.
- Net Operating Assets (NOA)
- Net operating assets remained relatively stable from 2021 to 2023, fluctuating within a narrow range between 47.18 billion and 48.94 billion US dollars. A significant expansion occurred in 2024, with NOA rising to 58.46 billion US dollars. This increase represents a growth of approximately 20% over the previous year, suggesting a substantial expansion of the company's operating asset base or a significant change in its balance sheet structure.
- Aggregate Accruals Trend
- The absolute value of cash-flow-statement-based aggregate accruals shifted from a significant negative position of -6.76 billion US dollars in 2021 to a positive 5.91 billion US dollars in 2024. The transition from negative accruals to positive accruals reflects a shift in the timing of revenue recognition and expense recording relative to cash movements. The surge in positive accruals in 2024 coincides with the peak in the accruals ratio and the expansion of net operating assets, indicating that a larger portion of the company's reported financial performance is currently driven by non-cash accounting entries.
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