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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Intuitive Surgical Inc. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
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Balance-Sheet-Based Accruals Ratio
Intuitive Surgical Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total 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 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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 exhibits significant fluctuations over the observed period. Net operating assets demonstrate a consistent upward trend initially, followed by a slight decrease in the final year. A detailed examination of the accruals ratio reveals notable shifts in the relationship between net operating assets and aggregate accruals.
- Net Operating Assets
- Net operating assets increased from US$6,994,700 thousand in 2022 to US$8,174,100 thousand in 2023, representing substantial growth. This trend continued with a significant increase to US$12,516,300 thousand in 2024. However, a modest decrease to US$12,006,800 thousand was observed in 2025, indicating a potential stabilization or slight contraction of operating assets.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals were negative in 2022, at -US$752,800 thousand, suggesting a release of accruals or a reduction in deferred revenue/expenses relative to cash flows. A substantial shift occurred in 2023, with accruals turning positive at US$1,179,400 thousand, indicating an increase in accruals. This positive trend accelerated in 2024, reaching US$4,342,200 thousand, before reversing to a negative value of -US$509,500 thousand in 2025.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio was -10.21% in 2022, reflecting the negative aggregate accruals relative to net operating assets. A dramatic increase was observed in 2023, with the ratio rising to 15.55%. The ratio peaked at 41.97% in 2024, indicating a substantial level of accruals relative to net operating assets. In 2025, the ratio decreased significantly to -4.16%, returning to a negative value. This volatility warrants further investigation to understand the underlying drivers of accrual patterns.
The substantial increase in the accruals ratio from 2022 to 2024 suggests a growing reliance on accruals to recognize revenue or defer expenses. The subsequent decline in 2025 indicates a potential reversal of this trend. The fluctuations in aggregate accruals and the resulting changes in the accruals ratio could be indicative of earnings management or changes in the company’s accounting practices. Further analysis, including a comparison to industry peers and a review of the underlying components of accruals, is recommended to assess the quality of financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Intuitive Surgical Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Intuitive Surgical, Inc. | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash (used in) provided by investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Abbott Laboratories | ||||||
| Elevance Health Inc. | ||||||
| Medtronic PLC | ||||||
| UnitedHealth Group Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Health Care Equipment & Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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 significant fluctuations in cash-flow-statement-based accruals and the corresponding accruals ratio over the four-year period. Net operating assets demonstrate a consistent upward trend, albeit with a slight decrease in the final year.
- Net Operating Assets
- Net operating assets increased from US$6,994,700 thousand in 2022 to US$8,174,100 thousand in 2023, representing substantial growth. This trend continued with a significant increase to US$12,516,300 thousand in 2024. However, a modest decrease to US$12,006,800 thousand was observed in 2025, potentially indicating a stabilization or shift in asset utilization.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals were negative in 2022, registering at -US$1,539,300 thousand. A substantial positive shift occurred in 2023, with accruals reaching US$344,300 thousand. Accruals continued to increase significantly in 2024, reaching US$3,180,400 thousand, before declining to -US$840,300 thousand in 2025. This volatility suggests considerable changes in the timing of cash receipts and disbursements relative to reported earnings.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. It was -20.88% in 2022, indicating substantial non-cash deductions from net income. The ratio became positive in 2023 at 4.54%, then increased substantially to 30.74% in 2024. A significant decrease was observed in 2025, with the ratio falling to -6.85%. The large swings in this ratio warrant further investigation, as substantial positive or negative accruals ratios can sometimes signal potential earnings manipulation or aggressive accounting practices. The negative ratio in the final year suggests a reliance on cash generation to support reported income.
The considerable fluctuations in the accruals ratio, particularly the shift from positive to negative values in 2025, require further scrutiny. While increasing net operating assets generally indicate positive business performance, the volatility in accruals suggests a need to examine the underlying components driving these changes and assess their impact on the quality of reported earnings.