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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Verizon Communications Inc. pages available for free this week:
- Income Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
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Balance-Sheet-Based Accruals Ratio
Verizon Communications Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Debt maturing within one year | ||||||
| Less: Long-term debt, excluding maturing within one year | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AT&T Inc. | ||||||
| T-Mobile US Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Telecommunication Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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 balance-sheet-based accruals ratio exhibited considerable fluctuation over the four-year period. Net operating assets demonstrated a modest overall increase, while aggregate accruals and the resulting accruals ratio experienced significant shifts, potentially warranting further investigation.
- Net Operating Assets
- Net operating assets remained relatively stable, increasing from US$240,497 million in 2022 to US$242,408 million in 2023, decreasing slightly to US$240,395 million in 2024, and then increasing to US$244,843 million in 2025. This suggests consistent operational scale with minor year-over-year changes.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals decreased substantially from US$9,350 million in 2022 to US$1,911 million in 2023. This trend continued into 2024, with accruals becoming negative at -US$2,013 million. A reversal occurred in 2025, with accruals rising to US$4,448 million. The volatility in aggregate accruals suggests potential changes in the timing of revenue and expense recognition or shifts in working capital management.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio mirrored the trend in aggregate accruals. It decreased from 3.96% in 2022 to 0.79% in 2023, then became negative at -0.83% in 2024. The ratio turned positive again in 2025, reaching 1.83%. A negative accruals ratio indicates that cash flows from operations are exceeding reported earnings, which could be due to conservative accounting practices or efficient working capital management, but also requires scrutiny for potential earnings manipulation. The large swing from negative to positive warrants further investigation into the underlying drivers of these changes.
The significant changes in the accruals ratio, particularly the move into negative territory in 2024, should be examined in conjunction with the company’s cash flow statement and income statement to understand the reasons behind these fluctuations. Further analysis should focus on identifying the specific accounts contributing to the changes in aggregate accruals.
Cash-Flow-Statement-Based Accruals Ratio
Verizon Communications Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Verizon | ||||||
| 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 | ||||||
| AT&T Inc. | ||||||
| T-Mobile US Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Telecommunication Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 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 analysis reveals a shifting pattern in aggregate accruals over the four-year period. Net operating assets demonstrate relative stability, fluctuating within a narrow range between US$240.395 billion and US$244.843 billion. However, cash-flow-statement-based aggregate accruals and the corresponding accruals ratio exhibit more pronounced changes.
- Cash-Flow-Statement-Based Aggregate Accruals
- In 2022, cash-flow-statement-based aggregate accruals were reported at US$12.777 billion. This figure experienced a substantial decline in 2023, becoming negative at -US$2.429 billion. The negative trend continued through 2024 (-US$732 million) and further intensified in 2025, reaching -US$3.303 billion. This indicates a consistent reduction in accruals relative to cash flows.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. Starting at 5.42% in 2022, the ratio decreased to -1.01% in 2023. This downward movement persisted, reaching -0.30% in 2024 and -1.36% in 2025. The increasingly negative values suggest a growing divergence between reported earnings and underlying cash flows.
The progression from positive to negative accruals, coupled with the increasing negativity of the accruals ratio, warrants further investigation. While a negative accruals ratio is not inherently problematic, a sustained and deepening negative trend could signal potential concerns regarding earnings quality. It suggests that the company is recognizing less accrual-based income relative to its cash flows, which could be due to various factors including conservative accounting practices, improved cash management, or potentially, aggressive revenue recognition in prior periods now reversing.