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
United States Steel Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 19,458) | 17,816) | 12,059) | 11,608) | 10,982) | |
| Less: Cash and cash equivalents | 3,504) | 2,522) | 1,985) | 749) | 1,000) | |
| Operating assets | 15,954) | 15,294) | 10,074) | 10,859) | 9,982) | |
| Operating Liabilities | ||||||
| Total liabilities | 9,147) | 8,713) | 8,180) | 7,515) | 6,779) | |
| Less: Short-term debt and current maturities of long-term debt | 63) | 28) | 192) | 14) | 65) | |
| Less: Long-term debt, less unamortized discount and debt issuance costs, excluding current maturities | 3,914) | 3,863) | 4,695) | 3,627) | 2,316) | |
| Operating liabilities | 5,170) | 4,822) | 3,293) | 3,874) | 4,398) | |
| Net operating assets1 | 10,784) | 10,472) | 6,781) | 6,985) | 5,584) | |
| Balance-sheet-based aggregate accruals2 | 312) | 3,691) | (204) | 1,401) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 2.94% | 42.79% | -2.96% | 22.29% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Freeport-McMoRan Inc. | 10.97% | -1.31% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Materials | 1.53% | -5.48% | 200.00% | — | — | |
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= 15,954 – 5,170 = 10,784
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= 10,784 – 10,472 = 312
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 312 ÷ [(10,784 + 10,472) ÷ 2] = 2.94%
4 Click competitor name to see calculations.
The analysis of the annual financial reporting quality measures reveals notable fluctuations in key indicators over the four-year period under review.
- Net Operating Assets
- The net operating assets demonstrated a general upward trend, starting from 6,985 million US dollars at the end of 2019 and slightly decreasing to 6,781 million in 2020. From 2020 onwards, there was a significant increase to 10,472 million in 2021 and a continued, though more moderate, rise to 10,784 million in 2022. This indicates a substantial growth in operating asset base during the last two years.
- Balance-sheet-based Aggregate Accruals
- Aggregate accruals exhibited high volatility, with a positive value of 1,401 million US dollars in 2019, followed by a negative figure of -204 million in 2020, indicating possible reversals or adjustments during that year. In 2021, accruals surged dramatically to 3,691 million, marking the highest value in the period, and then sharply declined to 312 million in 2022. Such fluctuations suggest changing accrual components possibly due to shifts in accounting estimates or business conditions.
- Balance-sheet-based Accruals Ratio
- The accruals ratio mirrored the volatility in aggregate accruals. It was relatively high at 22.29% in 2019, turned negative to -2.96% in 2020, and reached a peak of 42.79% in 2021. In 2022, the ratio dropped significantly to 2.94%. This ratio trend indicates that the proportion of accruals relative to net operating assets was unstable, with a particularly pronounced increase in 2021, which could imply changes in earnings quality or accounting practices during that year.
Overall, the data indicate a significant expansion of net operating assets alongside considerable instability in accrual measures and their ratios, particularly marked by the spikes in 2021. Such patterns warrant further investigation to understand underlying drivers, including operational performance and accounting policy impacts.
Cash-Flow-Statement-Based Accruals Ratio
United States Steel Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net earnings (loss) attributable to United States Steel Corporation | 2,524) | 4,174) | (1,165) | (630) | 1,115) | |
| Less: Net cash provided by operating activities | 3,505) | 4,090) | 138) | 682) | 938) | |
| Less: Net cash used in investing activities | (1,679) | (840) | (563) | (1,958) | (963) | |
| Cash-flow-statement-based aggregate accruals | 698) | 924) | (740) | 646) | 1,140) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 6.57% | 10.71% | -10.75% | 10.28% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Freeport-McMoRan Inc. | 6.85% | -5.88% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Materials | 1.97% | -4.42% | -8.43% | — | — | |
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 698 ÷ [(10,784 + 10,472) ÷ 2] = 6.57%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets display a fluctuating trend over the four-year period. Initially, there is a slight decline from 6,985 million USD in 2019 to 6,781 million USD in 2020, indicating a contraction in operating assets. However, this trend reverses in 2021, with a sharp increase to 10,472 million USD, and a further moderate rise to 10,784 million USD in 2022. This suggests an expansion in the company's operating asset base during the latter two years.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals present a volatile pattern. In 2019, the accruals are positive at 646 million USD, then sharply turn negative at -740 million USD in 2020, indicating a reversal in accruals and possibly reflecting changes in non-cash operating components. In 2021 and 2022, accruals return to positive values of 924 million USD and 698 million USD respectively, showing a recovery but not reaching the 2019 level. The fluctuation highlights variability in the quality of earnings or adjustments between cash flows and reported earnings.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrors the directional changes of aggregate accruals. It starts at 10.28% in 2019, drops sharply to -10.75% in 2020, indicating that accruals were negative relative to net operating assets in that year. A pronounced rebound occurs in 2021 with the ratio rising to 10.71%, followed by a decrease to 6.57% in 2022. Despite this decrease, the positive sign in recent years suggests a net increase in accruals relative to the asset base, potentially pointing to increased accrual-based earnings components.