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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Union Pacific Corp. pages available for free this week:
- Income Statement
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
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Balance-Sheet-Based Accruals Ratio
Union Pacific Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Debt due within one year | ||||||
| Less: Debt due after one year | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| United Airlines Holdings Inc. | ||||||
| United Parcel Service Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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 analysis of financial reporting quality reveals a consistent expansion of the operating asset base alongside fluctuating accrual levels between 2022 and 2025.
- Net Operating Assets Growth
- Net operating assets exhibited a steady upward trajectory, increasing from 44,470 million US dollars in 2022 to 48,765 million US dollars by 2025. This trend indicates a continuous increase in the capital employed in operating activities over the four-year period.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals showed significant variance. After rising from 1,586 million US dollars in 2022 to 1,826 million US dollars in 2023, there was a substantial decrease to 750 million US dollars in 2024. This was followed by a recovery to 1,719 million US dollars in 2025, returning to levels comparable to the 2022-2023 period.
- Accruals Ratio Performance
- The balance-sheet-based accruals ratio mirrors the volatility of aggregate accruals. The ratio increased from 3.63% in 2022 to a peak of 4.02% in 2023, before dropping sharply to 1.61% in 2024. The return to 3.59% in 2025 suggests that the 2024 dip was a temporary deviation from the established historical norm.
- Financial Reporting Quality Insights
- The marked reduction in the accruals ratio during 2024 suggests a period where reported earnings were more closely aligned with cash flows, typically indicative of higher earnings quality. The subsequent reversion to 3.59% in 2025 indicates a return to previous patterns of non-cash accounting adjustments relative to the total net operating assets.
Cash-Flow-Statement-Based Accruals Ratio
Union Pacific Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Cash provided by operating activities | ||||||
| Less: 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 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| United Airlines Holdings Inc. | ||||||
| United Parcel Service Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 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.
An analysis of the financial reporting quality reveals a consistent expansion of the operational asset base accompanied by volatility in the accruals levels. While net operating assets grew steadily over the four-year period, the relationship between reported earnings and cash flows shifted, as evidenced by the fluctuations in the cash-flow-statement-based accruals ratio.
- Net Operating Assets
- A continuous upward trend is observed in net operating assets, which increased from 44,470 million US dollars in 2022 to 48,765 million US dollars by 2025. This steady growth indicates a progressive expansion of the company's investment in operating assets required to generate revenue.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals exhibit a volatile pattern. After an initial increase from 1,107 million US dollars in 2022 to a peak of 1,667 million US dollars in 2023, the value decreased sharply to 726 million US dollars in 2024 before rebounding to 1,610 million US dollars in 2025. This instability suggests periodic variations in the timing of cash realizations relative to accrual-based accounting recognition.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the volatility of the aggregate accruals, fluctuating between a high of 3.67% in 2023 and a low of 1.56% in 2024. The ratio ended the period at 3.36% in 2025. Because the ratio remains relatively low throughout the observed timeframe, the divergence between cash flow and accounting earnings is modest, though the lack of a stable trend indicates inconsistent earnings quality from a cash-flow perspective across the reported years.