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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Balance-Sheet-Based Accruals Ratio
United Parcel Service Inc., 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 | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current maturities of long-term debt 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: 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 balance-sheet-based accruals ratio exhibits considerable fluctuation over the observed period. Net operating assets demonstrate an initial increase followed by a decline and subsequent recovery. A detailed examination of the accruals ratio and its components reveals noteworthy patterns.
- Net Operating Assets
- Net operating assets increased from 33,863 US$ millions in 2022 to 36,372 US$ millions in 2023, representing a growth of approximately 7.4%. A subsequent decrease was observed in 2024, with net operating assets falling to 31,915 US$ millions. However, these assets partially recovered in 2025, reaching 34,495 US$ millions.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals began at 7,934 US$ millions in 2022. These accruals decreased substantially to 2,509 US$ millions in 2023. A significant shift occurred in 2024, with accruals becoming negative at -4,457 US$ millions. In 2025, accruals turned positive again, reaching 2,580 US$ millions, though remaining below the 2023 level.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio was 26.54% in 2022. This ratio decreased significantly to 7.14% in 2023. The most dramatic change occurred in 2024, with the ratio becoming negative at -13.05%. In 2025, the ratio recovered to 7.77%, indicating a return to positive accruals, but remaining close to the 2023 level. The substantial negative accruals ratio in 2024 suggests a significant reduction in the build-up of accruals relative to net operating assets, potentially indicating cash generation exceeding reported earnings or a deliberate reduction in accrual accounting practices.
The volatility in the balance-sheet-based accruals ratio warrants further investigation. The shift from positive to negative accruals in 2024, and the subsequent partial recovery in 2025, could be indicative of changes in working capital management, revenue recognition policies, or other accounting practices. The correlation between the fluctuations in net operating assets and aggregate accruals should be examined to understand the underlying drivers of these trends.
Cash-Flow-Statement-Based Accruals Ratio
United Parcel Service Inc., 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: 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: 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.
The relationship between net operating assets and cash-flow-statement-based accruals exhibits notable fluctuations over the observed period. Initial values indicate a positive correlation between these elements, which subsequently shifts to a negative correlation before returning to a positive, albeit diminished, relationship.
- Net Operating Assets
- Net operating assets increased from 33,863 US$ millions in 2022 to 36,372 US$ millions in 2023, representing a growth of approximately 7.4%. A subsequent decrease was observed in 2024, falling to 31,915 US$ millions. This represents a decline of roughly 12.3% from the prior year. A partial recovery occurred in 2025, with net operating assets rising to 34,495 US$ millions.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals began at 4,916 US$ millions in 2022. These accruals decreased to 3,603 US$ millions in 2023, continuing a downward trend. A significant shift occurred in 2024, with accruals becoming negative at -4,123 US$ millions. In 2025, accruals turned positive again, reaching 1,857 US$ millions, though remaining below the levels observed in 2022 and 2023.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio was 16.44% in 2022, indicating a substantial level of accruals relative to net operating assets. This ratio decreased to 10.26% in 2023, suggesting a moderation in accrual activity. A substantial decline was then observed in 2024, with the ratio falling to -12.08%, indicating that cash flows exceeded reported earnings. The ratio recovered to 5.59% in 2025, but remained considerably lower than the 2022 and 2023 levels. The negative value in 2024 warrants further investigation as it suggests potential aggressive revenue recognition or delayed expense recognition in prior periods, or conversely, conservative practices in that year.
The volatility in the accruals ratio suggests potential changes in the company’s accounting practices or underlying economic conditions. The shift from positive to negative accruals in 2024, and the subsequent partial recovery in 2025, are key observations that merit further scrutiny to assess the quality of reported earnings.