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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Balance-Sheet-Based Accruals Ratio
RTX 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 | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings | ||||||
| Less: Long-term debt currently due | ||||||
| Less: Long-term debt, excluding currently due | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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.
- Net operating assets
- The net operating assets exhibited a relatively stable trend over the four-year period. Beginning at 98,352 million US dollars at the end of 2021, this figure increased slightly to 99,908 million in 2022. Subsequently, it experienced a modest decline, oscillating around 98,685 million in 2023 and further decreasing to 97,641 million by the end of 2024. Overall, the changes in net operating assets were minimal, suggesting a steady level of operating investment and resources employed in the business.
- Balance-sheet-based aggregate accruals
- This measure showed a notable shift in sign and magnitude across the analyzed years. In 2021 and 2022, the aggregate accruals were positive, recorded at 1,447 million and 1,556 million US dollars, respectively, indicating the accrual component was adding to earnings. However, in 2023, accruals turned significantly negative to -1,223 million and remained negative at -1,044 million in 2024, signaling a reversal in earnings adjustments related to accruals. This shift implies a change in the timing of revenue or expense recognition, potentially affecting earnings quality and cash flow conversion.
- Balance-sheet-based accruals ratio
- Consistent with the aggregate accruals, the accruals ratio demonstrates a transition from positive to negative values. The ratio increased slightly from 1.48% in 2021 to 1.57% in 2022, reflecting a stable or slightly increasing level of accrual-based earnings adjustments relative to net operating assets. In 2023, the ratio shifted sharply to -1.23% and then to -1.06% in 2024. The negative ratios suggest that accruals reduced reported earnings relative to net operating assets, which might hint at more conservative accounting or potential operational challenges impacting earnings reliability during these years.
Cash-Flow-Statement-Based Accruals Ratio
RTX 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 common shareowners | ||||||
| Less: Net cash flows provided by operating activities | ||||||
| Less: Net cash flows (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 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited a slight upward trend from US$98,352 million at the end of 2021 to US$99,908 million at the end of 2022. However, this was followed by a gradual decrease over the next two years, reaching US$98,685 million at the end of 2023 and further declining to US$97,641 million by the end of 2024. Overall, the net operating assets experienced modest fluctuations with a marginal net decrease when comparing 2024 to 2021 figures.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals showed considerable volatility throughout the period. Beginning with a negative value of US$ -1,914 million in 2021, the accruals shifted to a positive US$858 million in 2022, indicating an unusual swing. This was followed by a return to negative values in the subsequent years, with US$ -1,649 million in 2023 and US$ -851 million in 2024. The oscillation between negative and positive figures suggests irregularities or variability in accrual accounting adjustments during this timeframe.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrored the trend observed in aggregate accruals, beginning at -1.96% in 2021, turning positive to 0.87% in 2022, and reverting to negative percentages in 2023 and 2024 at -1.66% and -0.87%, respectively. These fluctuations in the ratio indicate inconsistent alignment between accruals and operating cash flows over the years. The magnitude of negative ratios decreased somewhat by 2024, reflecting a partial reduction in accruals relative to operating cash flow compared to earlier years.