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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- Statement of Comprehensive Income
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Return on Equity (ROE) since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
SLB N.V., balance sheet computation of aggregate accruals
US$ in millions
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] =
The financial reporting quality measure data reveals several notable trends concerning the company's net operating assets and accrual-based metrics over the analyzed periods.
- Net Operating Assets
- The net operating assets exhibit a consistent upward trend from 26,342 million US dollars at the end of 2021 to 29,755 million US dollars by the end of 2024. This represents an overall increase of approximately 13% over the four-year span, indicating a progressive expansion in the asset base or operational scale of the entity.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals demonstrate considerable fluctuation. In 2021, a negative value of 27 million US dollars was observed, which reversed sharply to 979 million US dollars in 2022. A significant increase occurred in 2023, reaching 2,014 million US dollars, followed by a decline to 420 million US dollars in 2024. These variations suggest volatility in accrual accounting components, implying changes in the timing of revenue and expense recognition across periods.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio also reflects marked variability, moving from a negative ratio of -0.1% in 2021 to a peak of 7.11% in 2023 before decreasing to 1.42% in 2024. The elevated ratio in 2023 highlights a higher proportion of accruals relative to net operating assets during that year, which may affect the assessment of earnings quality and the sustainability of reported earnings.
Overall, the data suggests that while the company is expanding its operating asset base steadily, there is notable inconsistency in accrual measures. The spikes and subsequent reduction in accrual values and their ratio could warrant further investigation to understand underlying causes, such as shifts in accounting policies, earnings management practices, or operational changes influencing accrual components. Monitoring these metrics is important for assessing the reliability and quality of reported financial performance over time.
Cash-Flow-Statement-Based Accruals Ratio
SLB N.V., cash flow statement computation of aggregate accruals
US$ in millions
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] =
The data reveals the annual trends in net operating assets and cash-flow-statement-based accrual measures over a four-year period.
- Net Operating Assets
- There is a consistent upward trend in net operating assets each year. The values increased steadily from approximately 26,342 million USD at the end of 2021 to about 29,755 million USD by the end of 2024. This gradual increase suggests expansion in the company's operating asset base over the period under review.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals exhibit notable volatility throughout the years. In 2021, the figure was negative at around -1,851 million USD, indicating potential cash outflows exceeding accrual-based earnings. However, the amount turned positive in 2022 to 1,109 million USD, declined to a lower positive level of 349 million USD in 2023, and rose again to 1,004 million USD in 2024. These fluctuations indicate variability in the timing and recognition of earnings versus cash flows, which could affect earnings quality.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrored the aggregate accruals pattern with significant changes in direction. The ratio started negative at -7.02% in 2021, reflecting negative accruals relative to net operating assets. It turned positive to 4.13% in 2022, decreased to 1.23% in 2023, and rose to 3.40% in 2024. This variability suggests fluctuating quality in earnings recognition relative to cash flow generation, with positive but varying levels of accruals in recent years.