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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Balance-Sheet-Based Accruals Ratio
Walt Disney Co., balance sheet computation of aggregate accruals
US$ in millions
| Sep 28, 2024 | Sep 30, 2023 | Oct 1, 2022 | Oct 2, 2021 | Oct 3, 2020 | Sep 28, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | |||||||
| Less: Cash and cash equivalents | |||||||
| Operating assets | |||||||
| Operating Liabilities | |||||||
| Total liabilities | |||||||
| Less: Short-term finance lease liabilities | |||||||
| Less: Current portion of borrowings | |||||||
| Less: Borrowings, excluding current portion | |||||||
| Less: Long-term finance lease liabilities | |||||||
| Operating liabilities | |||||||
| Net operating assets1 | |||||||
| Balance-sheet-based aggregate accruals2 | |||||||
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | |||||||
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Alphabet Inc. | |||||||
| Comcast Corp. | |||||||
| Meta Platforms Inc. | |||||||
| Netflix Inc. | |||||||
| Take-Two Interactive Software Inc. | |||||||
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Media & Entertainment | |||||||
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Communication Services | |||||||
Based on: 10-K (reporting date: 2024-09-28), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-10-01), 10-K (reporting date: 2021-10-02), 10-K (reporting date: 2020-10-03), 10-K (reporting date: 2019-09-28).
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 measures over the five-year period reveals several noteworthy trends in the data.
- Net Operating Assets
- The net operating assets showed a gradual increase from 138,534 million US dollars in 2020 to 145,525 million US dollars in 2024. This growth, while steady, indicates a relatively stable expansion in the company's operating asset base over the period. The increments between years are modest, suggesting controlled growth without significant fluctuations.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals exhibited significant volatility. In 2020, the value was notably negative at -6,037 million US dollars, indicating a reduction in accruals-related assets or liabilities. However, from 2021 onwards, the accruals became positive, with a sharp rise to 2,424 million US dollars in 2021 and further to 4,430 million US dollars in 2022. Subsequently, the values declined sharply in 2023 and 2024 to 116 million and 21 million respectively, nearing zero. This fluctuation suggests an initial period of high accrual adjustments, followed by normalization towards minimal accrual involvement.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, reflecting the relationship between accruals and net operating assets, moved from a negative -4.26% in 2020 to positive figures starting in 2021. It rose to 1.73% in 2021 and further to 3.09% in 2022, indicating increasing accruals relative to net operating assets. This trend reversed sharply at the end of the period, falling to 0.08% in 2023 and nearly zero at 0.01% in 2024. The pattern corroborates the aggregate accruals data, showing a build-up in accruals up to 2022 followed by a sharp reduction, which could imply improved earnings quality or a shift in accounting practices reducing accruals.
Overall, the data indicate a stable asset base with a significant fluctuation in accruals activity, peaking in 2022 and then approaching minimal accrual usage by 2024, potentially signaling changes in operational or accounting strategies aimed at enhancing the quality of financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Walt Disney Co., cash flow statement computation of aggregate accruals
US$ in millions
| Sep 28, 2024 | Sep 30, 2023 | Oct 1, 2022 | Oct 2, 2021 | Oct 3, 2020 | Sep 28, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income (loss) attributable to The Walt Disney Company (Disney) | |||||||
| Less: Cash provided by operations | |||||||
| Less: 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 | |||||||
| Alphabet Inc. | |||||||
| Comcast Corp. | |||||||
| Meta Platforms Inc. | |||||||
| Netflix Inc. | |||||||
| Take-Two Interactive Software Inc. | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Media & Entertainment | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Communication Services | |||||||
Based on: 10-K (reporting date: 2024-09-28), 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-10-01), 10-K (reporting date: 2021-10-02), 10-K (reporting date: 2020-10-03), 10-K (reporting date: 2019-09-28).
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 demonstrated a gradual increase over the five-year period. Starting at 138,534 million US dollars in 2020, the figure rose steadily each year, reaching 145,525 million US dollars by 2024. This trend indicates a consistent growth in the company's operational asset base across the evaluated timeframe.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals reflected noticeable volatility during the observed periods. Initially, a significant negative value of -6,630 million US dollars was recorded in 2020, indicating a substantial reduction in accruals relative to cash flows. This figure improved sharply in 2021 to -400 million US dollars and turned positive in 2022, reaching 2,151 million US dollars. However, the subsequent years saw a reversal, with negative amounts of -2,871 million US dollars in 2023 and -2,118 million US dollars in 2024. These fluctuations suggest periods of variability in the quality and timing of earnings recognition relative to cash flows.
- Cash-flow-statement-based Accruals Ratio
- The accrual ratio mirrored the pattern observed in aggregate accruals, shifting between negative and positive values. The ratio was -4.68% in 2020, indicating a strong negative accrual effect. In 2021, this ratio decreased in magnitude to -0.29%, then reversed to a positive 1.5% in 2022 before falling back to negative values of -1.97% in 2023 and -1.46% in 2024. This oscillation suggests fluctuations in the proportion of accruals relative to net operating assets, which could impact the reliability of reported earnings and cash flow consistency.