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.
Paying user area
Try for free
Valero Energy Corp. pages available for free this week:
- Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Book Value (P/BV) since 2005
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Valero Energy Corp. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Balance-Sheet-Based Accruals Ratio
Valero Energy Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of debt and finance lease obligations | ||||||
| Less: Debt and finance lease obligations, less current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Occidental Petroleum Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= – =
3 2023 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 annual financial reporting quality measures indicate several noteworthy trends over the four-year period.
- Net Operating Assets
- The net operating assets exhibit a general upward trend from 31,006 million US dollars in 2020 to 34,624 million US dollars in 2023. This represents a gradual increase over the period with a slight dip in 2021 to 29,565 million US dollars before increasing in the subsequent years, suggesting a steady growth in operating asset base.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals show significant volatility, moving from a positive value of 1,381 million US dollars in 2020 to a negative figure of -1,441 million US dollars in 2021. This is followed by a sharp rebound to 2,676 million US dollars in 2022 and a slight decline to 2,383 million US dollars in 2023. The fluctuations indicate varying degrees of accrual adjustments across the years, which may reflect changes in accounting estimates or operational conditions affecting accrual components.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, mirrors the pattern observed in aggregate accruals. It declines from 4.56% in 2020 to -4.76% in 2021, indicating a negative accrual influence during that year. Subsequently, it rises sharply to 8.66% in 2022 and slightly decreases to 7.13% in 2023. The elevated accrual ratios in the last two years suggest higher levels of accruals relative to the asset base, cautioning on potential impacts to earnings quality and the persistence of reported earnings.
Overall, the data reveals stable growth in net operating assets accompanied by considerable fluctuations in accruals and their ratio, which could warrant further examination into the underlying drivers of accruals and their implications for financial reporting quality.
Cash-Flow-Statement-Based Accruals Ratio
Valero Energy Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Valero Energy Corporation stockholders | ||||||
| Less: Net cash provided by 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 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Occidental Petroleum Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 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 data reveals several notable trends over the four-year period ending in 2023. Net operating assets demonstrate a generally positive trajectory. Starting from approximately US$31.0 billion in 2020, net operating assets slightly declined in 2021 to around US$29.6 billion but then rebounded with consistent growth in 2022 and 2023, ultimately reaching approximately US$34.6 billion. This suggests a strengthening asset base after a minor dip in the 2021 fiscal year.
The cash-flow-statement-based aggregate accruals exhibit considerable volatility. In 2020, the figure was positive but modest at US$56 million, denoting a small level of accruals relative to operating cash flows. However, 2021 experienced a significant negative shift to about -US$2.77 billion, indicating substantial write-offs or adjustments possibly affecting earnings quality. This was followed by a recovery in 2022, where accruals turned positive again at around US$1.76 billion, and remained positive albeit slightly lower in 2023 at approximately US$1.47 billion. These fluctuations imply varying degrees of earnings management or timing differences in revenue and expense recognition impacting the accruals recorded.
The ratio of cash-flow-statement-based accruals to net operating assets also reflects these dynamics. Beginning with a very low positive ratio of 0.18% in 2020, it sharply declined to -9.15% in 2021, corresponding to the large negative accruals noted earlier. By 2022, the ratio swung back to a positive 5.69%, indicating a reversal of the prior year's trend. In 2023, the accruals ratio slightly decreased but remained positive at 4.40%. This pattern suggests a period of considerable instability in accruals relative to net assets during 2021, followed by stabilization and improvement in subsequent years.
Overall, the data indicates an improving financial reporting quality trend from 2021 through 2023, following a year marked by significant negative accruals and a reduction in net operating assets. The recovery in accruals and the accretion of net operating assets during the latter years highlight enhanced earnings quality and potentially more conservative accounting practices compared to the anomalous year of 2021.