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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Sherwin-Williams Co. pages available for free this week:
- Income Statement
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Assets
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Book Value (P/BV) since 2005
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Balance-Sheet-Based Accruals Ratio
Sherwin-Williams Co., balance sheet computation of aggregate accruals
US$ in thousands
| 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: Current portion of long-term debt | ||||||
| Less: Current portion of finance lease liabilities | ||||||
| Less: Long-term debt, excluding current portion | ||||||
| Less: Long-term finance lease liabilities, excluding current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Linde plc | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Chemicals | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Materials | ||||||
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
- There is a generally increasing trend in net operating assets over the analyzed periods. From 11,886,500 thousand US dollars at the end of 2021, the figure rises to 13,473,000 thousand by the end of 2022. A slight decline is observed in 2023 to 13,289,900 thousand, followed by an increase to 13,918,500 thousand in 2024. Overall, this suggests an expansion in the company's net operating asset base with a minor fluctuation in the middle of the period.
- Balance-Sheet-Based Aggregate Accruals
- The accruals exhibit significant volatility over the reporting periods. Accruals increase sharply from 210,200 thousand US dollars in 2021 to 1,586,500 thousand in 2022, indicating a considerable rise in non-cash adjustments. In 2023, there is a reversal to a negative value of -183,100 thousand, signifying a substantial reduction or reversal in accruals. In 2024, the value returns to a positive figure of 628,600 thousand, though notably lower than in 2022. This pattern reflects fluctuations in the recognition of revenues and expenses that could affect earnings quality.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio closely mirrors the aggregate accruals trend. It starts at a low 1.78% in 2021, spikes to 12.51% in 2022, indicating higher accrual activity relative to net operating assets. The ratio then turns negative at -1.37% in 2023, reflecting the reversal in accruals, before decreasing positively to 4.62% in 2024. These fluctuations suggest variability in the degree to which earnings are influenced by accrual accounting, impacting financial reporting quality over the periods.
Cash-Flow-Statement-Based Accruals Ratio
Sherwin-Williams Co., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net operating cash | ||||||
| Less: Net investing cash | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Linde plc | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Chemicals | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Materials | ||||||
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.
The financial data reveals several notable trends over the four-year period analyzed. Net operating assets have demonstrated a generally upward trajectory, increasing from $11,886,500 thousand in 2021 to $13,918,500 thousand in 2024. After a significant rise between 2021 and 2022, a slight decrease was observed in 2023, followed by another increase in 2024, indicating overall growth with some fluctuation.
The cash-flow-statement-based aggregate accruals show greater variability over the period. Starting at $96,200 thousand in 2021, the figure surged to $1,707,800 thousand in 2022, which represents a substantial rise. In 2023, the accruals turned negative to -$93,800 thousand, before rebounding to $724,500 thousand in 2024. This volatility suggests changes in accrual management or operational adjustments influencing reported earnings versus cash flow.
Examining the cash-flow-statement-based accruals ratio, expressed as a percentage of net operating assets, similar trends emerge. The ratio increased sharply from 0.82% in 2021 to 13.47% in 2022, indicating a significant increase in accruals relative to operating assets. In 2023, the ratio turned negative (-0.7%), reflecting the negative aggregate accruals, and rose again to 5.33% in 2024, showing a moderation but sustained elevated accrual activity compared to 2021 levels.
Overall, the data suggests steady growth in net operating assets, alongside notable fluctuations in accrual measures. The large swings in accrual values and their ratio imply variability in earnings quality and potential changes in accounting estimates or operational cash flows. These patterns merit close monitoring, as they may affect the reliability of reported earnings and operational cash flow consistency.