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
Cash-Flow-Statement-Based Accruals Ratio

Linde plc, 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	80,811)	79,658)	81,605)	88,229)	86,612)
Less: Cash and cash equivalents	4,664)	5,436)	2,823)	3,754)	2,700)
Operating assets	76,147)	74,222)	78,782)	84,475)	83,912)
Operating Liabilities
Total liabilities	39,716)	38,271)	36,164)	38,647)	34,977)
Less: Short-term debt	4,713)	4,117)	1,163)	3,251)	1,732)
Less: Current portion of long-term debt	1,263)	1,599)	1,709)	751)	1,531)
Less: Current finance lease liabilities	50)	42)	47)	38)	—)
Less: Long-term debt, excluding current portion	13,397)	12,198)	11,335)	12,152)	10,693)
Less: Long-term finance lease liabilities	143)	114)	129)	125)	—)
Operating liabilities	20,150)	20,201)	21,781)	22,330)	21,021)

Net operating assets¹	55,997)	54,021)	57,001)	62,145)	62,891)
Balance-sheet-based aggregate accruals²	1,976)	(2,980)	(5,144)	(746)	—)
Financial Ratio
Balance-sheet-based accruals ratio³	3.59%	-5.37%	-8.63%	-1.19%	—
Benchmarks
Balance-Sheet-Based Accruals Ratio, Industry
Materials	17.04%	-1.28%	-6.60%	-2.91%	—

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
= 76,147 – 20,150 = 55,997

² 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets₂₀₂₃ – Net operating assets₂₀₂₂
= 55,997 – 54,021 = 1,976

³ 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,976 ÷ [(55,997 + 54,021) ÷ 2] = 3.59%

Financial ratio	Description	The company
Balance-sheet-based accruals ratio	Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets.	Using the balance-sheet-based accruals ratio, Linde plc improved earnings quality from 2022 to 2023.

Linde plc, 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, Linde plc	6,199)	4,147)	3,826)	2,501)	2,285)
Less: Net cash provided by operating activities	9,305)	8,864)	9,725)	7,429)	6,119)
Less: Net cash (used for) provided by investing activities	(4,670)	(3,088)	(3,007)	(2,986)	1,189)
Cash-flow-statement-based aggregate accruals	1,564)	(1,629)	(2,892)	(1,942)	(5,023)
Financial Ratio
Cash-flow-statement-based accruals ratio¹	2.84%	-2.93%	-4.85%	-3.11%	—
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Industry
Materials	-1.03%	-0.49%	-5.15%	-4.70%	—

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 × 1,564 ÷ [(55,997 + 54,021) ÷ 2] = 2.84%

Financial ratio	Description	The company
Cash-flow-statement-based accruals ratio	Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets.	Using the cash-flow-statement-based accruals ratio, Linde plc improved earnings quality from 2022 to 2023.

Linde plc (NASDAQ:LIN)

Financial Reporting Quality: Aggregate Accruals

Balance-Sheet-Based Accruals Ratio

Cash-Flow-Statement-Based Accruals Ratio