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
Thermo Fisher Scientific Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 97,321) | 98,726) | 97,154) | 95,123) | 69,052) | |
| Less: Cash and cash equivalents | 4,009) | 8,077) | 8,524) | 4,477) | 10,325) | |
| Less: Short-term investments | 1,561) | 3) | —) | —) | —) | |
| Operating assets | 91,751) | 90,646) | 88,630) | 90,646) | 58,727) | |
| Operating Liabilities | ||||||
| Total liabilities | 47,650) | 51,884) | 53,006) | 54,146) | 34,535) | |
| Less: Short-term obligations and current maturities of long-term obligations | 2,214) | 3,609) | 5,579) | 2,537) | 2,628) | |
| Less: Long-term obligations, excluding current maturities | 29,061) | 31,308) | 28,909) | 32,333) | 19,107) | |
| Operating liabilities | 16,375) | 16,967) | 18,518) | 19,276) | 12,800) | |
| Net operating assets1 | 75,376) | 73,679) | 70,112) | 71,370) | 45,927) | |
| Balance-sheet-based aggregate accruals2 | 1,697) | 3,567) | (1,258) | 25,443) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 2.28% | 4.96% | -1.78% | 43.38% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AbbVie Inc. | 13.10% | -22.39% | -14.27% | -9.69% | — | |
| Amgen Inc. | -10.36% | 57.08% | 4.07% | 0.70% | — | |
| Bristol-Myers Squibb Co. | -3.21% | -7.12% | -3.86% | -13.40% | — | |
| Danaher Corp. | -3.94% | 3.48% | -1.55% | 16.41% | — | |
| Eli Lilly & Co. | 29.18% | 28.84% | 11.38% | 16.60% | — | |
| Gilead Sciences Inc. | -11.79% | 1.04% | -2.92% | -2.34% | — | |
| Johnson & Johnson | 10.61% | -21.13% | 19.84% | 3.75% | — | |
| Merck & Co. Inc. | 6.20% | 3.16% | 0.46% | 25.14% | — | |
| Pfizer Inc. | -11.48% | 30.66% | 24.95% | -7.11% | — | |
| Regeneron Pharmaceuticals Inc. | 25.51% | 1.17% | 11.07% | 43.54% | — | |
| Vertex Pharmaceuticals Inc. | 42.13% | 61.24% | 14.07% | 18.20% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 1.64% | 7.36% | 4.84% | 6.18% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | 5.49% | 7.80% | 5.29% | 5.94% | — | |
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
= 91,751 – 16,375 = 75,376
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 75,376 – 73,679 = 1,697
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,697 ÷ [(75,376 + 73,679) ÷ 2] = 2.28%
4 Click competitor name to see calculations.
The data reveals several notable trends in key financial measures over the four-year period.
- Net Operating Assets
-
There is a general upward trend in net operating assets from 2021 through 2024. The value decreased slightly from approximately 71,370 million US dollars at the end of 2021 to 70,112 million at the end of 2022. However, it rebounded thereafter, increasing to 73,679 million in 2023 and further to 75,376 million in 2024. This suggests an overall expansion in operating assets despite the slight contraction experienced in 2022.
- Balance-Sheet-Based Aggregate Accruals
-
The balance-sheet-based aggregate accruals exhibit considerable volatility across the years. Starting at a high positive value of 25,443 million US dollars in 2021, there is a sharp decline to a negative figure of -1,258 million in 2022. This indicates a significant reversal or reduction in accruals. In 2023 and 2024, the accruals return to positive values, at 3,567 million and 1,697 million respectively, though remaining substantially lower than the 2021 peak. This pattern implies fluctuating adjustments in accrued items, possibly reflecting changes in accounting estimates, revenue recognition, or expense accruals.
- Balance-Sheet-Based Accruals Ratio
-
The accruals ratio mirrors the aggregate accruals trend, demonstrating considerable fluctuation as well. The ratio begins at a notably high 43.38% in 2021, indicating a significant level of accruals relative to net operating assets. In 2022, it swings sharply to a negative -1.78%, corresponding to the negative aggregate accruals observed. Subsequently, the ratio stabilizes to moderate positive levels, 4.96% in 2023 and 2.28% in 2024, reflecting lower but positive accrual adjustments in relation to operating assets. This reduction in accrual ratio may be indicative of improved earnings quality or more conservative accounting practices in the latter years.
Overall, the trends suggest a period of adjustment and fluctuations in accrual accounting between 2021 and 2024, with net operating assets generally expanding. The sharp changes in accruals and their ratio highlight potential variability in earnings quality over the years, with a move towards more moderate accrual levels in the most recent periods analyzed.
Cash-Flow-Statement-Based Accruals Ratio
Thermo Fisher Scientific Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Thermo Fisher Scientific Inc. | 6,335) | 5,995) | 6,950) | 7,725) | 6,375) | |
| Less: Net cash provided by operating activities | 8,667) | 8,406) | 9,154) | 9,312) | 8,289) | |
| Less: Net cash used in investing activities | (5,841) | (5,142) | (2,159) | (21,932) | (1,510) | |
| Cash-flow-statement-based aggregate accruals | 3,509) | 2,731) | (45) | 20,345) | (404) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 4.71% | 3.80% | -0.06% | 34.69% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| AbbVie Inc. | 10.32% | -24.89% | -16.25% | -10.28% | — | |
| Amgen Inc. | -11.16% | 52.47% | 8.81% | -12.87% | — | |
| Bristol-Myers Squibb Co. | -4.97% | -5.99% | -9.10% | -12.73% | — | |
| Danaher Corp. | -1.25% | 8.20% | 1.44% | 18.48% | — | |
| Eli Lilly & Co. | 28.52% | 28.13% | 10.32% | 5.30% | — | |
| Gilead Sciences Inc. | -18.05% | -0.19% | -4.95% | -4.86% | — | |
| Johnson & Johnson | 10.58% | 13.66% | 10.78% | 8.23% | — | |
| Merck & Co. Inc. | 5.00% | 2.23% | 0.61% | 29.09% | — | |
| Pfizer Inc. | -5.24% | 19.96% | 18.46% | 13.18% | — | |
| Regeneron Pharmaceuticals Inc. | 12.04% | 14.35% | 18.61% | 49.24% | — | |
| Vertex Pharmaceuticals Inc. | 43.34% | 62.03% | -14.45% | 1.38% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | 2.07% | 9.68% | 2.52% | 8.19% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | 4.00% | 8.59% | 4.25% | 7.53% | — | |
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 × 3,509 ÷ [(75,376 + 73,679) ÷ 2] = 4.71%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit a generally increasing trend over the four-year period. Starting at 71,370 million US dollars at the end of 2021, the value slightly decreased to 70,112 million in 2022 but then increased again to 73,679 million in 2023 and further to 75,376 million in 2024. This indicates a stabilization after a minor dip, followed by progressive growth in the company's core asset base used for operations.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals, derived from the cash flow statement, show significant volatility across the years. There is a substantial positive figure in 2021 at 20,345 million US dollars, followed by a sharp decline to a slight negative value of -45 million in 2022. Subsequently, accruals increased to 2,731 million in 2023 and further to 3,509 million in 2024. Despite fluctuations, the period ends with moderate positive accruals, suggesting variability in the timing of cash flows versus accounting earnings.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, representing the aggregate accruals relative to net operating assets, reflects considerable instability. The ratio was notably high at 34.69% in 2021, then dramatically dropped to a negative ratio of -0.06% in 2022. It subsequently rises to 3.8% in 2023 and increases slightly to 4.71% in 2024. This pattern underscores considerable changes in the proportion of accruals to operating assets, indicating fluctuations in earnings quality and potential differences in accrual-based earnings versus cash flow generated from operations.