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
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 | 63,056) | 60,982) | 57,888) | 51,774) | 53,864) | |
| Less: Cash and cash equivalents | 5,424) | 4,862) | 4,122) | 3,313) | 2,583) | |
| Operating assets | 57,632) | 56,120) | 53,766) | 48,461) | 51,281) | |
| Operating Liabilities | ||||||
| Total liabilities | 34,532) | 35,514) | 38,071) | 32,132) | 31,328) | |
| Less: Current portion of debt and finance lease obligations | 1,406) | 1,109) | 1,264) | 723) | 494) | |
| Less: Debt and finance lease obligations, less current portion | 10,118) | 10,526) | 12,606) | 13,954) | 9,178) | |
| Operating liabilities | 23,008) | 23,879) | 24,201) | 17,455) | 21,656) | |
| Net operating assets1 | 34,624) | 32,241) | 29,565) | 31,006) | 29,625) | |
| Balance-sheet-based aggregate accruals2 | 2,383) | 2,676) | (1,441) | 1,381) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 7.13% | 8.66% | -4.76% | 4.56% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | 5.21% | 0.03% | — | — | — | |
| ConocoPhillips | 10.61% | -5.86% | — | — | — | |
| ExxonMobil Holdings Corp. | 3.91% | -1.19% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 5.28% | -1.34% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | 5.39% | -1.05% | 200.00% | — | — | |
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
= 57,632 – 23,008 = 34,624
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 34,624 – 32,241 = 2,383
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 2,383 ÷ [(34,624 + 32,241) ÷ 2] = 7.13%
4 Click competitor name to see calculations.
An analysis of financial reporting quality between 2020 and 2023 reveals significant volatility in the balance-sheet-based accruals ratio, contrasting with a relatively stable growth trajectory in net operating assets.
- Net Operating Assets Trend
- Net operating assets demonstrated a general upward trend, increasing from 31,006 million US dollars in 2020 to 34,624 million US dollars by 2023. A brief contraction occurred in 2021, where assets decreased to 29,565 million US dollars, followed by a consistent recovery and expansion over the subsequent two years.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals exhibited substantial fluctuations over the period. The figure moved from 1,381 million US dollars in 2020 to a negative 1,441 million US dollars in 2021, before surging to a peak of 2,676 million US dollars in 2022 and slightly moderating to 2,383 million US dollars in 2023.
- Accruals Ratio Interpretation
- The accruals ratio mirrors the volatility of the aggregate accruals, shifting from 4.56% in 2020 to -4.76% in 2021. This negative value indicates a period where cash flows exceeded accrual-based earnings, which is typically associated with higher earnings quality. However, the ratio increased sharply to 8.66% in 2022 and remained elevated at 7.13% in 2023, suggesting a heightened reliance on non-cash accruals to support reported earnings in the most recent fiscal years.
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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 | 8,835) | 11,528) | 930) | (1,421) | 2,422) | |
| Less: Net cash provided by operating activities | 9,229) | 12,574) | 5,859) | 948) | 5,531) | |
| Less: Net cash used in investing activities | (1,865) | (2,805) | (2,159) | (2,425) | (3,001) | |
| Cash-flow-statement-based aggregate accruals | 1,471) | 1,759) | (2,770) | 56) | (108) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 4.40% | 5.69% | -9.15% | 0.18% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Chevron Corp. | 0.58% | -1.22% | — | — | — | |
| ConocoPhillips | 5.11% | -1.56% | — | — | — | |
| ExxonMobil Holdings Corp. | -0.04% | -2.93% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 0.87% | -2.11% | -10.40% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | 0.89% | -1.75% | -10.60% | — | — | |
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 × 1,471 ÷ [(34,624 + 32,241) ÷ 2] = 4.40%
2 Click competitor name to see calculations.
Analysis of financial reporting quality between 2020 and 2023 reveals significant volatility in aggregate accruals relative to the steady growth of net operating assets. While the asset base has expanded over the observed period, the relationship between reported earnings and cash flows has undergone substantial shifts, particularly between 2021 and 2022.
- Net Operating Assets Trend
- Net operating assets experienced a slight contraction between 2020 and 2021, moving from 31,006 million to 29,565 million. Following this dip, a consistent upward trajectory was established, with assets rising to 32,241 million in 2022 and reaching 34,624 million by December 31, 2023. This indicates a moderate expansion of the operational asset base during the latter half of the period.
- Aggregate Accruals Volatility
- Cash-flow-statement-based aggregate accruals exhibited extreme fluctuations. Following a near-neutral position of 56 million in 2020, a significant negative swing to -2,770 million occurred in 2021. This was followed by a sharp reversal to positive 1,759 million in 2022 and a slight moderation to 1,471 million in 2023. This variance suggests substantial shifts in the timing of cash flows relative to the recognition of revenues and expenses.
- Accruals Ratio Interpretation
- The accruals ratio mirrors the volatility of the aggregate accruals, shifting from 0.18% in 2020 to -9.15% in 2021. A positive reversal followed, with the ratio reaching 5.69% in 2022 and settling at 4.40% in 2023. The movement from a strongly negative ratio to a positive one indicates a transition from a period where cash flow exceeded reported earnings to a period where earnings exceeded cash flow. The relative stabilization of the ratio above 4% in the final two years suggests a consistent gap between accrual-based earnings and cash-based performance relative to net operating assets.
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