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
Pioneer Natural Resources Co., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 36,613) | 35,740) | 36,811) | 19,229) | 19,067) | |
| Less: Cash and cash equivalents | 240) | 1,032) | 3,847) | 1,442) | 631) | |
| Less: Restricted cash | —) | —) | 37) | 59) | 74) | |
| Less: Investment in affiliate | 139) | 172) | 135) | 123) | 187) | |
| Less: Short-term investments, net | —) | —) | 58) | —) | —) | |
| Operating assets | 36,234) | 34,536) | 32,734) | 17,605) | 18,175) | |
| Operating Liabilities | ||||||
| Total liabilities | 13,442) | 13,199) | 13,974) | 7,660) | 6,948) | |
| Less: Current portion of debt | 28) | 779) | 244) | 140) | 450) | |
| Less: Finance lease liability, current | 21) | 20) | 18) | 17) | 16) | |
| Less: Long-term debt, excluding current portion | 4,807) | 4,125) | 6,688) | 3,160) | 1,839) | |
| Less: Finance lease liability, noncurrent | 481) | 501) | 521) | 539) | 556) | |
| Operating liabilities | 8,105) | 7,774) | 6,503) | 3,804) | 4,087) | |
| Net operating assets1 | 28,129) | 26,762) | 26,231) | 13,801) | 14,088) | |
| Balance-sheet-based aggregate accruals2 | 1,367) | 531) | 12,430) | (287) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 4.98% | 2.00% | 62.10% | -2.06% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | 5.21% | 0.03% | — | — | — | |
| ConocoPhillips | 10.61% | -5.86% | — | — | — | |
| ExxonMobil Holdings Corp. | 3.91% | -1.19% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 5.28% | -1.34% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | 5.39% | -1.05% | 200.00% | — | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 36,234 – 8,105 = 28,129
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 28,129 – 26,762 = 1,367
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,367 ÷ [(28,129 + 26,762) ÷ 2] = 4.98%
4 Click competitor name to see calculations.
The financial data indicates a significant expansion in the scale of net operating assets and a period of extreme volatility in aggregate accruals between 2020 and 2023.
- Net Operating Assets Trend
- Net operating assets exhibited a substantial increase of approximately 90% between 2020 and 2021, rising from 13,801 million USD to 26,231 million USD. Following this initial surge, growth stabilized, reaching 28,129 million USD by the end of 2023, suggesting a period of rapid asset expansion followed by a phase of steady growth.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals showed significant fluctuation over the four-year period. A negative value of -287 million USD in 2020 shifted to a peak of 12,430 million USD in 2021. This sharp increase was followed by a precipitous decline to 531 million USD in 2022 and a moderate increase to 1,367 million USD in 2023.
- Accruals Ratio and Earnings Quality
- The balance-sheet-based accruals ratio mirrors the volatility of the aggregate accruals. The ratio moved from -2.06% in 2020 to an anomalous peak of 62.10% in 2021. The subsequent correction to 2.00% in 2022 and 4.98% in 2023 indicates a return to low single-digit accrual levels relative to net operating assets, suggesting a stabilization in the alignment between reported accounting earnings and cash flow patterns.
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Cash-Flow-Statement-Based Accruals Ratio
Pioneer Natural Resources Co., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to common stockholders | 4,894) | 7,845) | 2,118) | (200) | 756) | |
| Less: Net cash provided by operating activities | 8,448) | 11,348) | 6,059) | 2,083) | 3,115) | |
| Less: Net cash used in investing activities | (4,713) | (3,586) | (869) | (1,668) | (2,447) | |
| Cash-flow-statement-based aggregate accruals | 1,159) | 83) | (3,072) | (615) | 88) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 4.22% | 0.31% | -15.35% | -4.41% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | 0.58% | -1.22% | — | — | — | |
| ConocoPhillips | 5.11% | -1.56% | — | — | — | |
| ExxonMobil Holdings Corp. | -0.04% | -2.93% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 0.87% | -2.11% | -10.40% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | 0.89% | -1.75% | -10.60% | — | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,159 ÷ [(28,129 + 26,762) ÷ 2] = 4.22%
2 Click competitor name to see calculations.
An analysis of the cash-flow-statement-based accruals reveals a significant shift in the relationship between reported earnings and cash flows from 2020 through 2023. The transition from deeply negative accruals to positive values suggests a material change in the company's financial reporting quality and operating dynamics.
- Net Operating Assets Growth
- A substantial expansion in net operating assets is observed, increasing from 13,801 million USD in 2020 to 28,129 million USD by 2023. The most pronounced growth occurred between 2020 and 2021, where assets nearly doubled, followed by a period of steady, incremental increases through 2023.
- Aggregate Accruals Volatility
- Cash-flow-statement-based aggregate accruals exhibited significant volatility. The values were negative in 2020 and 2021, reaching a trough of -3,072 million USD in 2021, indicating that cash flows from operations significantly exceeded accrual-based earnings during that period. A reversal occurred in 2022, with accruals turning positive at 83 million USD, and continuing to rise to 1,159 million USD in 2023.
- Accruals Ratio Trend
- The accruals ratio mirrors the movement of aggregate accruals, shifting from -4.41% in 2020 to a low of -15.35% in 2021. This sharp negative peak represents a period where earnings were heavily conservative relative to cash flow. The ratio kemudian corrected sharply to 0.31% in 2022 and further increased to 4.22% in 2023. This upward trajectory indicates that reported earnings have begun to exceed cash flows from operations, moving the reporting quality toward a more traditional accrual profile.
The overall pattern indicates a transition from a period of high cash-flow dominance relative to earnings in 2021 to a regime of positive accruals by 2023. This shift, coupled with the doubling of the net operating asset base, suggests a fundamental change in the scale and accounting characteristics of the operations over the analyzed timeframe.
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