Stock Analysis on Net

Verizon Communications Inc. (NYSE:VZ)

Financial Reporting Quality: Aggregate Accruals 

Microsoft Excel

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

Verizon Communications Inc., balance sheet computation of aggregate accruals

US$ in millions

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Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Operating Assets
Total assets 384,711 380,255 379,680 366,596 316,481
Less: Cash and cash equivalents 4,194 2,065 2,605 2,921 22,171
Operating assets 380,517 378,190 377,075 363,675 294,310
Operating Liabilities
Total liabilities 284,136 286,456 287,217 283,396 247,209
Less: Debt maturing within one year 22,633 12,973 9,963 7,443 5,889
Less: Long-term debt, excluding maturing within one year 121,381 137,701 140,676 143,425 123,173
Operating liabilities 140,122 135,782 136,578 132,528 118,147
 
Net operating assets1 240,395 242,408 240,497 231,147 176,163
Balance-sheet-based aggregate accruals2 (2,013) 1,911 9,350 54,984
Financial Ratio
Balance-sheet-based accruals ratio3 -0.83% 0.79% 3.96% 27.00%
Benchmarks
Balance-Sheet-Based Accruals Ratio, Competitors4
AT&T Inc. -3.90% 4.66% -35.04% 3.99%
T-Mobile US Inc. -0.12% -1.84% 0.29% 7.95%
Balance-Sheet-Based Accruals Ratio, Sector
Telecommunication Services -1.88% 1.72% -13.79% 11.76%
Balance-Sheet-Based Accruals Ratio, Industry
Communication Services 5.86% 5.03% -3.70% 10.24%

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
= 380,517140,122 = 240,395

2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 240,395242,408 = -2,013

3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,013 ÷ [(240,395 + 242,408) ÷ 2] = -0.83%

4 Click competitor name to see calculations.


Net Operating Assets
The net operating assets exhibited a gradual increase from 231,147 million US dollars at the end of 2021 to 242,408 million in 2023. However, there was a slight decline to 240,395 million in 2024. This trend indicates overall stability with minor fluctuations over the four-year period, suggesting a relatively consistent base of operating assets with a small reduction in the last reported year.
Balance-Sheet-Based Aggregate Accruals
The balance-sheet-based aggregate accruals displayed a significant and steady decrease over the period. Beginning at a high of 54,984 million US dollars in 2021, the figure sharply declined to 9,350 million in 2022, then further to 1,911 million in 2023, and finally turned negative to -2,013 million in 2024. This continuous downward trend, culminating in negative accruals, suggests an improving quality of earnings with diminishing reliance on accrual-based adjustments.
Balance-Sheet-Based Accruals Ratio
The accruals ratio mirrored the trend observed in aggregate accruals, starting at a notably high 27% in 2021, decreasing significantly to 3.96% in 2022, further reducing to 0.79% in 2023, and eventually moving into negative territory at -0.83% in 2024. This progression indicates a marked decline in accrual intensity relative to net operating assets, which may reflect a shift towards more cash-based, transparent earnings or potentially changes in accounting practices or asset compositions.

Cash-Flow-Statement-Based Accruals Ratio

Verizon Communications Inc., cash flow statement computation of aggregate accruals

US$ in millions

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Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Net income attributable to Verizon 17,506 11,614 21,256 22,065 17,801
Less: Net cash provided by operating activities 36,912 37,475 37,141 39,539 41,768
Less: Net cash used in investing activities (18,674) (23,432) (28,662) (67,153) (23,512)
Cash-flow-statement-based aggregate accruals (732) (2,429) 12,777 49,679 (455)
Financial Ratio
Cash-flow-statement-based accruals ratio1 -0.30% -1.01% 5.42% 24.39%
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
AT&T Inc. -4.21% -1.74% -6.03% 3.06%
T-Mobile US Inc. -1.37% -3.19% -1.31% 6.34%
Cash-Flow-Statement-Based Accruals Ratio, Sector
Telecommunication Services -2.08% -1.78% -0.98% 10.19%
Cash-Flow-Statement-Based Accruals Ratio, Industry
Communication Services 2.08% -2.32% -1.31% 6.83%

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 × -732 ÷ [(240,395 + 242,408) ÷ 2] = -0.30%

2 Click competitor name to see calculations.


Net Operating Assets
The net operating assets exhibited a gradual increase from 231,147 million US dollars in 2021 to 242,408 million US dollars in 2023, followed by a slight decline to 240,395 million US dollars in 2024. This trend reflects a generally stable investment in operational resources over the four-year period with minor fluctuations in the most recent year.
Cash-flow-statement-based Aggregate Accruals
Aggregate accruals experienced a significant decline across the timeframe. Starting at 49,679 million US dollars in 2021, the value sharply decreased to 12,777 million US dollars in 2022. It further moved into negative territory in 2023, reaching -2,429 million US dollars, and remained negative, though less so, at -732 million US dollars in 2024. This pattern indicates a marked reduction in accrual components linked to cash flow, moving from a positive to a negative accrual base.
Cash-flow-statement-based Accruals Ratio
The accruals ratio showed a substantial decrease over the period. Beginning at 24.39% in 2021, it dropped sharply to 5.42% in 2022, and continued to decline into negative percentages, reaching -1.01% in 2023 and -0.3% in 2024. This decline suggests an improvement in the quality of earnings, as lower or negative accrual ratios typically correlate with cleaner cash flow earnings relative to net operating assets.