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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TJX Cos. Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
TJX Cos. Inc., balance sheet computation of aggregate accruals
US$ in millions
| Jan 31, 2026 | Feb 1, 2025 | Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | |||||||
| Less: Cash and cash equivalents | |||||||
| Operating assets | |||||||
| Operating Liabilities | |||||||
| Total liabilities | |||||||
| Less: Current portion of long-term debt | |||||||
| Less: Long-term debt, 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 | |||||||
| Amazon.com Inc. | |||||||
| Home Depot Inc. | |||||||
| Lowe’s Cos. Inc. | |||||||
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Discretionary Distribution & Retail | |||||||
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | |||||||
Based on: 10-K (reporting date: 2026-01-31), 10-K (reporting date: 2025-02-01), 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30).
1 2026 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= – =
3 2026 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.
The information presents a review of net operating assets, aggregate accruals, and the resulting accruals ratio over a five-year period. A significant decrease in the accruals ratio is observed between 2022 and 2024, followed by fluctuations in subsequent years.
- Net Operating Assets
- Net operating assets demonstrate a consistent upward trend throughout the period, increasing from US$3,131 million in 2022 to US$6,829 million in 2026. This indicates overall growth in the company’s operational investments and resources.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals exhibit a substantial decline from US$1,685 million in 2022 to US$318 million in 2024. Accruals then increase to US$1,360 million in 2025 before decreasing again to US$905 million in 2026. This pattern suggests a changing relationship between reported earnings and underlying cash flows.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio experiences a dramatic reduction from 73.65% in 2022 to 7.22% in 2024. This suggests a significant improvement in the quality of earnings, with a smaller proportion of reported income being attributable to accruals rather than cash flow. The ratio then increases to 25.93% in 2025 and further decreases to 14.19% in 2026, indicating some volatility but remaining substantially lower than the 2022 level. The fluctuations in the later years warrant further investigation to understand the drivers behind these changes.
The considerable reduction in the accruals ratio between 2022 and 2024 is the most prominent feature of this analysis. While the ratio fluctuates in the later periods, it does not return to the high level observed in 2022. The concurrent growth in net operating assets suggests that the company is expanding its operations while simultaneously reducing its reliance on accruals to generate reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
TJX Cos. Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Jan 31, 2026 | Feb 1, 2025 | Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net income | |||||||
| Less: Net cash provided by operating activities | |||||||
| Less: Net cash used in investing activities | |||||||
| Cash-flow-statement-based aggregate accruals | |||||||
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | |||||||
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Amazon.com Inc. | |||||||
| Home Depot Inc. | |||||||
| Lowe’s Cos. Inc. | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Discretionary Distribution & Retail | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | |||||||
Based on: 10-K (reporting date: 2026-01-31), 10-K (reporting date: 2025-02-01), 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30).
1 2026 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 information presents a review of net operating assets, cash-flow-statement-based aggregate accruals, and the resulting accruals ratio over a five-year period. A significant fluctuation in the cash-flow-statement-based accruals ratio is observed, warranting further investigation.
- Net Operating Assets
- Net operating assets demonstrate a consistent upward trend throughout the period, increasing from US$3,131 million in 2022 to US$6,829 million in 2026. This indicates overall growth in the company’s operational investments and capacity.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals exhibit considerable volatility. Initially at US$1,272 million in 2022, they decreased substantially to US$884 million in 2023, and then experienced a dramatic reduction to US$134 million in 2024. Accruals then increased to US$1,225 million in 2025 before declining again to US$601 million in 2026. This pattern suggests potential shifts in the timing of revenue and expense recognition, or changes in working capital management.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the fluctuations in aggregate accruals. It began at 55.57% in 2022, decreased significantly to 23.97% in 2023, and then plummeted to a low of 3.04% in 2024. A substantial increase to 23.36% occurred in 2025, followed by a decrease to 9.43% in 2026. The ratio’s volatility, particularly the sharp decline in 2024 and subsequent rebound in 2025, is noteworthy. A ratio of 3.04% in 2024 is exceptionally low and may indicate a period of strong cash generation relative to reported earnings. The subsequent increase suggests a return towards more typical accrual patterns. The ratio in 2026 is the lowest observed over the period, though not as extreme as in 2024.
The divergence between the increasing net operating assets and the fluctuating accruals ratio suggests a complex relationship between investment, operational performance, and earnings quality. The significant changes in the accruals ratio warrant further scrutiny to determine the underlying drivers and assess any potential implications for the reliability of reported earnings.