Stock Analysis on Net

Sherwin-Williams Co. (NYSE:SHW)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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

Sherwin-Williams Co., balance sheet computation of aggregate accruals

US$ in thousands

Microsoft Excel
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

Microsoft Excel
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.