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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United Parcel Service Inc. pages available for free this week:
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Enterprise Value (EV)
- Net Profit Margin since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Revenues
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
United Parcel Service 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 | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current maturities of long-term debt, commercial paper and finance leases | ||||||
| Less: Long-term debt and finance leases, excluding current maturities | ||||||
| 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. | ||||||
| Union Pacific Corp. | ||||||
| United Airlines Holdings Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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.
- Net Operating Assets
- The net operating assets demonstrated a steady increase from US$25,591 million in 2021 to US$31,870 million in 2022, reaching a peak at US$33,506 million in 2023. However, there was a slight decline in 2024 to US$31,709 million. Overall, the trend shows growth over the four-year period, with a minor dip in the latest year analyzed.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals decreased consistently over the period. Starting from US$6,584 million in 2021, there was a slight decline to US$6,279 million in 2022, followed by a significant drop to US$1,636 million in 2023. By 2024, the figure turned negative at -US$1,797 million, indicating a reversal from positive to negative accruals.
- Balance-sheet-based Accruals Ratio
- The accruals ratio exhibited a notable downward trajectory. It declined from 29.53% in 2021 to 21.85% in 2022, then sharply to 5% in 2023. By 2024, the ratio became negative at -5.51%. This pattern suggests a reduction in accrual-based adjustments relative to net operating assets, with an eventual move into negative territory reflective of changes in accounting estimates or cash flow timing.
Cash-Flow-Statement-Based Accruals Ratio
United Parcel Service Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net cash from 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 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Airlines Holdings Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
The financial data reveals several key trends concerning the quality of annual financial reporting over the observed periods.
- Net Operating Assets
- The net operating assets demonstrate an overall upward trend from 25,591 million US dollars in 2021 to 33,506 million in 2023, indicating an expansion in the company's operating asset base. However, in 2024, there is a noticeable decrease to 31,709 million, suggesting a contraction or reallocation of operating assets.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals show significant volatility. From 1,701 million in 2021, the value sharply increases to 4,916 million in 2022, marking a substantial rise in accruals. In 2023, the accruals decrease to 3,603 million but remain elevated relative to 2021. Notably, in 2024, the figure turns negative to -4,123 million, indicating a reversal or reduction in accruals which may reflect changes in underlying earnings quality or accounting practices.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the pattern of aggregate accruals but provides a relative perspective. The ratio increases from 7.63% in 2021 to a peak of 17.11% in 2022, highlighting a higher proportion of accruals relative to net operating assets. It then declines to 11.02% in 2023, suggesting some normalization, before turning negative to -12.64% in 2024. A negative accruals ratio typically implies that cash flows are exceeding earnings, potentially signaling improved earnings quality or changes in cash flow recognition.
Collectively, these trends suggest that while the company's operating asset base expanded through 2023, the fluctuations and eventual reversal in accrual measures indicate shifts in the financial reporting dynamics. The negative accrual figures and ratio in the latest period could point to improved earnings quality or significant adjustments in financial operations, warranting further detailed examination to understand underlying causes.