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
Texas Pacific Land Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 1,156,398) | 877,427) | 764,064) | 571,635) | 598,176) | |
| Less: Cash and cash equivalents | 725,169) | 510,834) | 428,242) | 281,046) | 303,645) | |
| Operating assets | 431,229) | 366,593) | 335,822) | 290,589) | 294,531) | |
| Operating Liabilities | ||||||
| Total liabilities | 113,202) | 104,540) | 112,353) | 86,451) | 86,039) | |
| Operating liabilities | 113,202) | 104,540) | 112,353) | 86,451) | 86,039) | |
| Net operating assets1 | 318,027) | 262,053) | 223,469) | 204,138) | 208,492) | |
| Balance-sheet-based aggregate accruals2 | 55,974) | 38,584) | 19,331) | (4,354) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 19.30% | 15.89% | 9.04% | -2.11% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | 5.21% | 0.03% | — | — | — | |
| ConocoPhillips | 10.61% | -5.86% | — | — | — | |
| ExxonMobil Holdings Corp. | 3.91% | -1.19% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 5.28% | -1.34% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | 5.39% | -1.05% | 200.00% | — | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 431,229 – 113,202 = 318,027
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 318,027 – 262,053 = 55,974
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 55,974 ÷ [(318,027 + 262,053) ÷ 2] = 19.30%
4 Click competitor name to see calculations.
An analysis of the balance-sheet-based accruals for Texas Pacific Land Corp. between 2020 and 2023 reveals a consistent upward trajectory across all measured metrics. The shift from negative to positive accruals, combined with a steadily increasing accruals ratio, indicates a changing relationship between reported earnings and cash flow movements over the four-year period.
- Net Operating Assets
- A continuous expansion in net operating assets is observed, growing from US$ 204.1 million in 2020 to US$ 318.0 million by 2023. This represents a steady increase in the asset base supporting the company's operations.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals experienced a significant reversal and subsequent growth. The figure moved from a negative value of US$ -4.4 million in 2020 to US$ 56.0 million in 2023. The transition to positive accruals starting in 2021 suggests that non-cash accounting adjustments began to contribute more heavily to the reported financial position.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio demonstrates a marked increase, rising from -2.11% in 2020 to 19.30% in 2023. This trend indicates that a larger proportion of the company's operating assets consists of accruals relative to the total asset base. From a financial reporting quality perspective, the steady rise in this ratio suggests that reported earnings are increasingly driven by non-cash accruals rather than direct cash flows.
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Cash-Flow-Statement-Based Accruals Ratio
Texas Pacific Land Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income | 405,645) | 446,362) | 269,980) | 176,049) | 318,728) | |
| Less: Cash provided by operating activities | 418,288) | 447,149) | 265,163) | 207,037) | 342,790) | |
| Less: Cash used in investing activities | (60,312) | (21,401) | (14,997) | (25,998) | (111,692) | |
| Cash-flow-statement-based aggregate accruals | 47,669) | 20,614) | 19,814) | (4,990) | 87,630) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 16.44% | 8.49% | 9.27% | -2.42% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | 0.58% | -1.22% | — | — | — | |
| ConocoPhillips | 5.11% | -1.56% | — | — | — | |
| ExxonMobil Holdings Corp. | -0.04% | -2.93% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 0.87% | -2.11% | -10.40% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | 0.89% | -1.75% | -10.60% | — | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 47,669 ÷ [(318,027 + 262,053) ÷ 2] = 16.44%
2 Click competitor name to see calculations.
An analysis of financial reporting quality from 2020 to 2023 reveals a progressive increase in both the scale of net operating assets and the magnitude of aggregate accruals. The transition from negative to positive accruals indicates a shifting relationship between reported earnings and actual cash flows generated from operations.
- Net Operating Assets Trend
- Net operating assets demonstrated consistent year-over-year growth, rising from 204,138 thousand USD in 2020 to 318,027 thousand USD in 2023. This represents a steady expansion of the operating asset base over the four-year period.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals shifted from a negative value of -4,990 thousand USD in 2020 to a positive 47,669 thousand USD by 2023. The pivot occurred in 2021, where accruals rose to 19,814 thousand USD, indicating that accounting earnings began to exceed cash flows. The most substantial increase in accruals was observed between 2022 and 2023.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio moved from -2.42% in 2020 to 16.44% in 2023. Following a period of relative stability between 2021 (9.27%) and 2022 (8.49%), the ratio experienced a significant increase in 2023. This upward trend suggests that a larger proportion of reported earnings is derived from non-cash accruals relative to the company's net operating assets.
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