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.
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Pfizer Inc. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Assets
- Common-Size Income Statement
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Pfizer Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings, including current portion of long-term debt | ||||||
| Less: Long-term debt, excluding 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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.
The balance-sheet-based accruals ratio exhibited significant fluctuations over the four-year period. Net operating assets demonstrated an overall increasing trend, while aggregate accruals and the resulting accruals ratio displayed considerable volatility.
- Net Operating Assets
- Net operating assets increased from US$109,014 million in 2022 to US$148,486 million in 2023, representing substantial growth. This was followed by a decrease to US$132,371 million in 2024, and a subsequent modest increase to US$137,974 million in 2025. The overall trend suggests asset expansion, though with some year-over-year variability.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals increased substantially from US$24,184 million in 2022 to US$39,472 million in 2023. A dramatic shift occurred in 2024, with accruals becoming negative at US$-16,115 million. This trend reversed in 2025, with accruals turning positive again, reaching US$5,603 million. The magnitude of the swing from positive to negative and back to positive suggests significant changes in the timing of cash flows relative to reported earnings.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It rose from 24.95% in 2022 to 30.66% in 2023, indicating a greater proportion of earnings derived from accruals. The ratio then experienced a substantial decline, becoming negative at -11.48% in 2024. This negative value suggests that cash flows exceeded reported earnings. In 2025, the ratio recovered to 4.15%, indicating a return to accruals contributing positively to reported earnings, albeit at a lower level than in 2022 or 2023. The volatility in this ratio warrants further investigation into the underlying drivers of accruals.
The significant fluctuations in both aggregate accruals and the accruals ratio suggest potential areas for further scrutiny regarding the quality of earnings. The negative accruals ratio in 2024 is particularly noteworthy and may indicate aggressive revenue recognition policies or delayed expense recognition in prior periods, or conversely, conservative practices in that year. Continued monitoring of these trends is recommended.
Cash-Flow-Statement-Based Accruals Ratio
Pfizer Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Pfizer Inc. common shareholders | ||||||
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 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.
Net operating assets increased from 2022 to 2023, then decreased in 2024 before experiencing a modest increase in 2025. Cash-flow-statement-based aggregate accruals exhibited a distinct pattern, rising through 2023 and then becoming negative in both 2024 and 2025. The cash-flow-statement-based accruals ratio mirrors this trend, initially increasing and then declining into negative territory.
- Cash-Flow-Statement-Based Aggregate Accruals
- The value of cash-flow-statement-based aggregate accruals increased from US$17,888 million in 2022 to US$25,697 million in 2023, representing a substantial rise. This was followed by a significant shift in 2024, with accruals becoming negative at US$-7,365 million. The negative trend continued in 2025, although the magnitude decreased to US$-2,582 million. This suggests a reversal in the pattern of recognizing revenue relative to cash inflows.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio followed the trend of aggregate accruals. It increased from 18.46% in 2022 to 19.96% in 2023. A marked decline occurred in 2024, with the ratio falling to -5.24%. The ratio remained negative in 2025, at -1.91%, indicating a continued, though lessened, divergence between reported earnings and cash flow from operations. The shift to negative values suggests that cash flows are exceeding reported earnings, potentially due to conservative revenue recognition or increased expense recognition relative to cash outflows.
- Relationship between Net Operating Assets and Accruals
- While net operating assets generally increased over the period, the concurrent changes in accruals suggest a complex relationship. The initial increase in net operating assets was accompanied by rising accruals, which could indicate growth. However, the subsequent decrease in net operating assets alongside negative accruals warrants further investigation. The negative accruals in 2024 and 2025 may indicate a deliberate effort to reduce reported earnings or a change in the timing of cash flows relative to revenue and expense recognition.
The observed patterns in accruals and the accruals ratio suggest potential areas for further scrutiny regarding the quality of earnings. The transition to negative accruals, particularly in 2024, should be examined to understand the underlying drivers and assess any potential implications for future financial performance.