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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UnitedHealth Group Inc. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
UnitedHealth Group 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: Short-term investments | ||||||
| Less: Assets under management | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings and current maturities of long-term debt | ||||||
| Less: Long-term debt, less 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 | ||||||
| Abbott Laboratories | ||||||
| CVS Health Corp. | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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.
The analysis of the annual financial reporting quality measure data reveals several notable trends in the company's financial position and accrual activities over the four-year period.
- Net operating assets
- There is a continuous and substantial increase in net operating assets from 94,126 million US dollars in 2021 to 150,382 million US dollars in 2024. This represents a growth of approximately 59.7% over the four years, indicating significant expansion in operational asset base.
- Balance-sheet-based aggregate accruals
- The aggregate accruals exhibit a fluctuating but generally upward trend. In 2021, the value was 3,977 million US dollars, which sharply increased to 17,846 million in 2022. Though there was a slight decline to 16,101 million in 2023, it rose again to reach 22,309 million in 2024. This pattern suggests increasing use of accruals, with some variability year to year.
- Balance-sheet-based accruals ratio
- Expressed as a percentage of net operating assets, the accruals ratio spikes from 4.32% in 2021 to a peak of 17.32% in 2022. After a moderate decrease to 13.41% in 2023, it climbs back up to 16.02% in 2024. The elevated ratio from 2022 onwards implies a higher degree of accrual-based adjustments relative to the operating asset base, which could affect the interpretation of earnings quality and financial performance.
In summary, the company shows strong asset growth accompanied by increasing balance-sheet-based accruals both in absolute terms and relative to net operating assets. The pronounced increase in accruals ratio after 2021 reflects greater reliance on accrual accounting measures that warrant careful consideration in evaluating the quality and sustainability of reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
UnitedHealth Group 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 earnings attributable to UnitedHealth Group common shareholders | ||||||
| Less: Cash flows from operating activities | ||||||
| Less: Cash flows used for investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Abbott Laboratories | ||||||
| CVS Health Corp. | ||||||
| Elevance Health Inc. | ||||||
| Intuitive Surgical Inc. | ||||||
| Medtronic PLC | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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.
- Net Operating Assets
- The net operating assets display a continuous upward trend over the four-year period analyzed. Starting at 94,126 million US dollars at the end of 2021, the figure increased to 111,972 million in 2022, then to 128,073 million in 2023, and further to 150,382 million by the end of 2024. This consistent growth indicates a steady expansion of the company's operating asset base, which may reflect increased operational capacity or investment in long-term assets.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals based on the cash flow statement show significant volatility across the years. The amount rose sharply from 5,314 million US dollars in 2021 to a peak of 22,390 million in 2022. In subsequent years, the figure dropped substantially to 8,887 million in 2023 and slightly increased again to 10,728 million in 2024. The spike in 2022 suggests an unusual level of accruals during this year, while the decrease afterward indicates a move toward more normalized accrual levels, yet still higher than the initial year.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the trend observed in the aggregate accruals. It increased notably from 5.77% in 2021 to 21.73% in 2022, implying a much higher proportion of accruals relative to net operating assets during that year. This ratio then declined to 7.4% in 2023 and slightly rose to 7.71% in 2024. Although the ratio remains elevated above the 2021 level in the last two years, the sharp peak in 2022 highlights an exceptional situation in accruals relative to operating assets during that period.