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
Target Corp., 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 | 59,490) | 57,769) | 55,356) | 53,335) | 53,811) | 51,248) | |
| Less: Cash and cash equivalents | 5,488) | 4,762) | 3,805) | 2,229) | 5,911) | 8,511) | |
| Operating assets | 54,002) | 53,007) | 51,551) | 51,106) | 47,900) | 42,737) | |
| Operating Liabilities | |||||||
| Total liabilities | 43,325) | 43,103) | 41,924) | 42,103) | 40,984) | 36,808) | |
| Less: Current portion of long-term debt and other borrowings | 2,130) | 1,636) | 1,116) | 130) | 171) | 1,144) | |
| Less: Long-term debt and other borrowings, excluding current portion | 14,326) | 14,304) | 14,922) | 16,009) | 13,549) | 11,536) | |
| Operating liabilities | 26,869) | 27,163) | 25,886) | 25,964) | 27,264) | 24,128) | |
| Net operating assets1 | 27,133) | 25,844) | 25,665) | 25,142) | 20,636) | 18,609) | |
| Balance-sheet-based aggregate accruals2 | 1,289) | 179) | 523) | 4,506) | 2,027) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 4.87% | 0.70% | 2.06% | 19.69% | 10.33% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Costco Wholesale Corp. | — | 6.21% | 11.49% | -0.39% | 20.71% | 5.32% | |
| Walmart Inc. | 8.91% | 5.23% | 6.15% | 0.02% | 1.09% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 0.00% | 4.68% | 6.12% | 2.78% | 4.30% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 0.00% | 7.28% | 1.15% | 2.58% | 7.61% | — | |
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
= 54,002 – 26,869 = 27,133
2 2026 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2026 – Net operating assets2025
= 27,133 – 25,844 = 1,289
3 2026 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,289 ÷ [(27,133 + 25,844) ÷ 2] = 4.87%
4 Click competitor name to see calculations.
Net operating assets exhibited a consistent upward trend over the five-year period, increasing from US$20,636 million in January 2022 to US$27,133 million in January 2026. However, balance-sheet-based aggregate accruals and the corresponding accruals ratio demonstrate significant fluctuations during the same timeframe.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals increased substantially from US$2,027 million in January 2022 to US$4,506 million in January 2023, representing a more than doubling of the value. A dramatic decrease followed, with accruals falling to US$523 million in February 2024 and further declining to US$179 million in February 2025 – the lowest value observed during the period. A subsequent increase is noted in January 2026, with accruals reaching US$1,289 million.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio mirrored the trend in aggregate accruals. It rose from 10.33% in January 2022 to 19.69% in January 2023. A sharp decline then occurred, with the ratio decreasing to 2.06% in February 2024 and reaching a low of 0.70% in February 2025. The ratio increased again in January 2026, ending at 4.87%.
The substantial increase in both accruals and the accruals ratio between January 2022 and January 2023 warrants further investigation. The subsequent, significant declines in both metrics over the following two years suggest a potential shift in accounting practices or operational changes impacting the timing of revenue and expense recognition. The final increase in both accruals and the accruals ratio in January 2026 could indicate a reversal of these trends or the emergence of new factors influencing accrual patterns. The volatility in the accruals ratio, particularly the sharp decreases, may signal potential areas of concern regarding the predictability of reported earnings and the quality of financial reporting.
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Cash-Flow-Statement-Based Accruals Ratio
Target Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Jan 31, 2026 | Feb 1, 2025 | Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Net earnings | 3,705) | 4,091) | 4,138) | 2,780) | 6,946) | 4,368) | |
| Less: Cash provided by operating activities | 6,562) | 7,367) | 8,621) | 4,018) | 8,625) | 10,525) | |
| Less: Cash used in investing activities | (3,649) | (2,860) | (4,760) | (5,504) | (3,154) | (2,591) | |
| Cash-flow-statement-based aggregate accruals | 792) | (416) | 277) | 4,266) | 1,475) | (3,566) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 2.99% | -1.62% | 1.09% | 18.64% | 7.52% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Costco Wholesale Corp. | — | 0.37% | 2.33% | 1.10% | 14.69% | -2.96% | |
| Walmart Inc. | 4.75% | 3.34% | 0.87% | 0.47% | -3.77% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 0.00% | 2.27% | 1.06% | 3.13% | -0.42% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 0.00% | 3.80% | -0.17% | 2.27% | 4.81% | — | |
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 × 792 ÷ [(27,133 + 25,844) ÷ 2] = 2.99%
2 Click competitor name to see calculations.
The information presents a review of net operating assets alongside cash-flow-statement-based accruals and the resulting accruals ratio over a five-year period. Net operating assets demonstrate a consistent upward trajectory throughout the observed timeframe, increasing from US$20,636 million to US$27,133 million. However, the cash-flow-statement-based aggregate accruals and accruals ratio exhibit considerably more volatility.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals increased significantly from US$1,475 million in 2022 to US$4,266 million in 2023. This represents a substantial rise in non-cash adjustments impacting net income. Following this peak, accruals decreased dramatically to US$277 million in 2024, then turned negative, reaching -US$416 million in 2025. A subsequent recovery is noted in 2026, with accruals rising to US$792 million. This pattern suggests considerable fluctuation in the timing of cash receipts and payments relative to reported earnings.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It rose from 7.52% in 2022 to 18.64% in 2023, indicating a greater proportion of reported earnings derived from accruals rather than cash flow. The ratio then declined sharply to 1.09% in 2024 and became negative in 2025 at -1.62%, suggesting that cash flow exceeded reported earnings. The ratio recovers to 2.99% in 2026. The negative accruals ratio in 2025 is a notable observation, potentially warranting further investigation into the underlying accounting practices and cash flow dynamics during that period.
The divergence between the steady growth in net operating assets and the fluctuating accruals and accruals ratio suggests a dynamic relationship between reported earnings and underlying cash flows. The significant increase in accruals in 2023, followed by a reversal in 2024 and a negative value in 2025, requires further scrutiny to assess the quality of earnings and potential areas of concern regarding revenue recognition or expense timing.
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