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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Philip Morris International Inc. pages available for free this week:
- Income Statement
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2008
- Total Asset Turnover since 2008
- Price to Operating Profit (P/OP) since 2008
- Analysis of Revenues
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Balance-Sheet-Based Accruals Ratio
Philip Morris International 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 | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings | ||||||
| Less: 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 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
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 exhibits significant fluctuations over the observed period. Initially high, the ratio demonstrates a substantial decrease followed by a return towards positive values. Net operating assets show a generally increasing trend, though with a mid-period dip.
- Net Operating Assets
- Net operating assets increased from US$33,605 million in 2022 to US$35,403 million in 2023, representing a growth of approximately 5.3%. A decrease was then observed in 2024, falling to US$31,609 million. Subsequently, net operating assets recovered in 2025, reaching US$35,935 million, exceeding the 2023 level.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were US$18,503 million in 2022. These accruals decreased dramatically to US$1,798 million in 2023. In 2024, accruals became negative, reaching -US$3,794 million, before turning positive again in 2025 at US$4,326 million.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio was 75.98% in 2022. This ratio declined sharply to 5.21% in 2023. A substantial negative value of -11.32% was recorded in 2024. The ratio recovered to 12.81% in 2025. The volatility in this ratio suggests significant changes in the relationship between reported earnings and cash flows. The high value in 2022 warrants further investigation, as does the subsequent dramatic decline and negative value in 2024. The return to a positive value in 2025 may indicate a reversal of the factors driving the 2024 result.
The large swings in the accruals ratio, coupled with the fluctuations in net operating assets, suggest potential areas for further scrutiny regarding the quality of earnings and the underlying economic performance of the entity. The negative accruals ratio in 2024 is particularly noteworthy and could indicate aggressive revenue recognition or delayed expense recognition, or potentially a correction of prior period overstatements.
Cash-Flow-Statement-Based Accruals Ratio
Philip Morris International Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net earnings attributable to PMI | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Food, Beverage & Tobacco | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Staples | ||||||
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.
The analysis reveals significant fluctuations in cash-flow-statement-based accruals and the corresponding accruals ratio over the four-year period. Net operating assets demonstrate an overall increasing trend, though with a notable decrease in 2024.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals exhibit a dramatic shift from substantial positive values to negative territory. In 2022, accruals totaled US$13,924 million. This figure decreased significantly to US$2,207 million in 2023, then turned negative in 2024, reaching -US$4,068 million. A return to positive accruals is observed in 2025, with a value of US$3,082 million, though remaining considerably lower than the 2022 level.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It begins at a high of 57.17% in 2022, indicating a substantial portion of operating assets were financed by accruals. The ratio declines sharply to 6.40% in 2023. A negative accruals ratio of -12.14% is recorded in 2024, suggesting a reversal in the relationship between cash flows and reported income. The ratio recovers to 9.13% in 2025, but remains well below the 2022 value. This volatility warrants further investigation into the underlying drivers of accrual patterns.
The considerable changes in the accruals ratio, particularly the move into negative territory in 2024, suggest potential shifts in the company’s earnings quality or accounting practices. The increase in net operating assets alongside decreasing accruals in later years could indicate improved operational cash generation. However, the initial high accruals ratio in 2022, followed by substantial declines, requires scrutiny to determine if earnings were initially overstated or if subsequent periods reflect more conservative accounting.