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
Royal Caribbean Cruises Ltd., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 32,258,355) | 32,465,187) | 30,320,284) | 27,698,270) | 22,296,317) | |
| Less: Cash and cash equivalents | 2,701,770) | 3,684,474) | 243,738) | 287,852) | 120,112) | |
| Operating assets | 29,556,585) | 28,780,713) | 30,076,546) | 27,410,418) | 22,176,205) | |
| Operating Liabilities | ||||||
| Total liabilities | 27,172,799) | 23,704,518) | 17,586,457) | 16,050,789) | 11,594,014) | |
| Less: Current portion of long-term debt | 2,243,131) | 961,768) | 1,186,586) | 1,646,841) | 1,188,514) | |
| Less: Commercial paper | —) | 409,319) | 1,434,180) | 775,488) | —) | |
| Less: Long-term debt, excluding current portion | 18,847,209) | 17,957,956) | 8,414,110) | 8,355,370) | 6,350,937) | |
| Operating liabilities | 6,082,459) | 4,375,475) | 6,551,581) | 5,273,090) | 4,054,563) | |
| Net operating assets1 | 23,474,126) | 24,405,238) | 23,524,965) | 22,137,328) | 18,121,642) | |
| Balance-sheet-based aggregate accruals2 | (931,112) | 880,273) | 1,387,637) | 4,015,686) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -3.89% | 3.67% | 6.08% | 19.95% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | 2.00% | — | — | — | — | |
| Chipotle Mexican Grill Inc. | 13.32% | — | — | — | — | |
| DoorDash, Inc. | 126.46% | — | — | — | — | |
| McDonald’s Corp. | 0.56% | — | — | — | — | |
| Starbucks Corp. | -25.79% | 45.93% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 1.21% | 200.00% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 12.78% | 200.00% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Net operating assets = Operating assets – Operating liabilities
= 29,556,585 – 6,082,459 = 23,474,126
2 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2021 – Net operating assets2020
= 23,474,126 – 24,405,238 = -931,112
3 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -931,112 ÷ [(23,474,126 + 24,405,238) ÷ 2] = -3.89%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets show a general increasing trend from 2018 through 2020, rising from approximately 22.14 billion USD in 2018 to about 24.41 billion USD in 2020. However, there is a slight decrease in 2021 to roughly 23.47 billion USD, indicating a modest reduction in net operational investment or asset base in that year.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals substantially declined over the period. Starting at around 4.02 billion USD in 2018, the figure dropped sharply to about 1.39 billion USD in 2019 and further to 880 million USD in 2020. In 2021, a notable reversal occurs with a negative accrual of approximately 931 million USD, suggesting a change in the recognition or timing of revenues and expenses or adjustments impacting accrual accounting.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio exhibits a declining trend over the years. It decreased from a high 19.95% in 2018 to a significantly lower 6.08% in 2019, followed by a further decline to 3.67% in 2020. By 2021, the ratio turns negative to -3.89%, reflecting the shift to negative aggregate accruals and potentially indicating increasingly conservative or deferred recognition in financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Royal Caribbean Cruises Ltd., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Royal Caribbean Cruises Ltd. | (5,260,499) | (5,797,462) | 1,878,887) | 1,811,042) | 1,625,133) | |
| Less: Net cash provided by (used in) operating activities | (1,877,815) | (3,731,653) | 3,716,366) | 3,479,139) | 2,874,566) | |
| Less: Net cash used in investing activities | (2,144,739) | (2,178,566) | (3,091,406) | (4,489,158) | (213,592) | |
| Cash-flow-statement-based aggregate accruals | (1,237,945) | 112,757) | 1,253,927) | 2,821,061) | (1,035,841) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -5.17% | 0.47% | 5.49% | 14.01% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | -11.13% | — | — | — | — | |
| Chipotle Mexican Grill Inc. | -9.35% | — | — | — | — | |
| DoorDash, Inc. | 159.10% | — | — | — | — | |
| McDonald’s Corp. | 2.17% | — | — | — | — | |
| Starbucks Corp. | -47.73% | 36.84% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | -5.57% | -34.42% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 11.50% | 6.55% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -1,237,945 ÷ [(23,474,126 + 24,405,238) ÷ 2] = -5.17%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets showed a consistent increase from 22,137,328 thousand US dollars in 2018 to a peak of 24,405,238 thousand US dollars in 2020. However, there was a slight decline in 2021 to 23,474,126 thousand US dollars, indicating a minor reduction after two years of growth.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals experienced a significant downward trend over the four-year period. Starting at 2,821,061 thousand US dollars in 2018, the figure declined sharply to 125,3927 thousand US dollars in 2019 and further decreased to 112,757 thousand US dollars in 2020. In 2021, it turned negative, reaching -1,237,945 thousand US dollars, indicating a reversal in accruals from positive to negative.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, expressed as a percentage, declined consistently from 14.01% in 2018 to 5.49% in 2019, and 0.47% in 2020, before becoming negative at -5.17% in 2021. This indicates an increasing proportion of cash-flow generated relative to accruals, culminating in a net negative accrual impact in the final year, which could suggest improved earnings quality or changes in accrual accounting practices.