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
Advanced Micro Devices Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 27, 2025 | Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 76,926) | 69,226) | 67,885) | 67,580) | 12,419) | |
| Less: Cash and cash equivalents | 5,539) | 3,787) | 3,933) | 4,835) | 2,535) | |
| Less: Short-term investments | 5,013) | 1,345) | 1,840) | 1,020) | 1,073) | |
| Operating assets | 66,374) | 64,094) | 62,112) | 61,725) | 8,811) | |
| Operating Liabilities | ||||||
| Total liabilities | 13,927) | 11,658) | 11,993) | 12,830) | 4,922) | |
| Less: Current portion of long-term debt, net | 874) | —) | 751) | —) | 312) | |
| Less: Long-term debt, net of current portion | 2,348) | 1,721) | 1,717) | 2,467) | 1) | |
| Operating liabilities | 10,705) | 9,937) | 9,525) | 10,363) | 4,609) | |
| Net operating assets1 | 55,669) | 54,157) | 52,587) | 51,362) | 4,202) | |
| Balance-sheet-based aggregate accruals2 | 1,512) | 1,570) | 1,225) | 47,160) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 2.75% | 2.94% | 2.36% | 169.75% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Analog Devices Inc. | -4.14% | -2.83% | 0.03% | -2.94% | 90.70% | |
| Applied Materials Inc. | 15.26% | 4.18% | 0.48% | 20.73% | 17.33% | |
| Broadcom Inc. | 3.40% | 87.89% | -1.58% | -5.37% | -8.72% | |
| Intel Corp. | 1.90% | -0.91% | 13.69% | 10.73% | — | |
| KLA Corp. | 10.15% | -1.32% | 3.95% | 21.25% | 3.62% | |
| Lam Research Corp. | 3.59% | -2.70% | 1.57% | 16.02% | 8.38% | |
| Micron Technology Inc. | 14.72% | 5.22% | 0.78% | 12.07% | 11.51% | |
| NVIDIA Corp. | 50.16% | 29.90% | 18.88% | 28.31% | 115.40% | |
| Qualcomm Inc. | -15.91% | 7.33% | -5.53% | 68.49% | 22.56% | |
| Texas Instruments Inc. | — | 15.89% | 31.37% | 22.75% | 18.48% | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | 0.00% | 19.65% | 6.33% | 24.66% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | 0.00% | 21.35% | 8.92% | 18.19% | — | |
Based on: 10-K (reporting date: 2025-12-27), 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= 66,374 – 10,705 = 55,669
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= 55,669 – 54,157 = 1,512
3 2025 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,512 ÷ [(55,669 + 54,157) ÷ 2] = 2.75%
4 Click competitor name to see calculations.
The information presents a notable shift in balance-sheet-based accruals and the associated ratio over a four-year period. A significant decrease in aggregate accruals is observed, accompanied by a corresponding decline in the accruals ratio.
- Net Operating Assets
- Net operating assets demonstrate a consistent upward trend, increasing from 51,362 US$ millions in 2022 to 55,669 US$ millions in 2025. This indicates overall growth in the company’s operational investments and assets.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals experienced a dramatic reduction. In 2022, they stood at 47,160 US$ millions, but decreased substantially to 1,225 US$ millions by 2023. Accruals remained relatively stable between 2023 and 2025, fluctuating between 1,225 and 1,570 US$ millions.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It fell sharply from 169.75% in 2022 to 2.36% in 2023. The ratio then experienced a modest increase, reaching 2.94% in 2024 before slightly decreasing to 2.75% in 2025. The ratio’s decline suggests a reduced reliance on accruals relative to net operating assets, potentially indicating improved cash flow generation or changes in accounting practices.
The substantial decrease in both aggregate accruals and the accruals ratio from 2022 to 2023 warrants further investigation. While a lower accruals ratio can be a positive sign, the initial value in 2022 was exceptionally high, and the subsequent drop could indicate a correction of prior period accruals or a fundamental shift in the company’s operational and financial characteristics. The relatively stable, low accruals ratio observed from 2023 to 2025 suggests a normalization of accrual patterns.
Cash-Flow-Statement-Based Accruals Ratio
Advanced Micro Devices Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 27, 2025 | Dec 28, 2024 | Dec 30, 2023 | Dec 31, 2022 | Dec 25, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | 4,335) | 1,641) | 854) | 1,320) | 3,162) | |
| Less: Net cash provided by operating activities | 6,493) | 3,041) | 1,667) | 3,565) | 3,521) | |
| Less: Net cash (used in) provided by investing activities | (6,851) | (1,101) | (1,423) | 1,999) | (686) | |
| Cash-flow-statement-based aggregate accruals | 4,693) | (299) | 610) | (4,244) | 327) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 8.55% | -0.56% | 1.17% | -15.28% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Analog Devices Inc. | -3.09% | -2.71% | -0.57% | -2.54% | -11.85% | |
| Applied Materials Inc. | 10.66% | 5.35% | -2.05% | 18.18% | 14.75% | |
| Broadcom Inc. | -2.99% | 10.29% | -6.71% | -8.94% | -12.34% | |
| Intel Corp. | 3.62% | -6.58% | 11.35% | 2.75% | — | |
| KLA Corp. | 3.15% | 16.82% | 3.66% | 18.30% | 9.27% | |
| Lam Research Corp. | -1.37% | -5.83% | -1.71% | 12.43% | 3.89% | |
| Micron Technology Inc. | 9.37% | 1.18% | -2.52% | 11.37% | 10.01% | |
| NVIDIA Corp. | 81.96% | 52.67% | -47.90% | 73.13% | 233.25% | |
| Qualcomm Inc. | -30.00% | 5.53% | -14.57% | 46.91% | 15.61% | |
| Texas Instruments Inc. | — | 7.93% | 26.35% | 28.24% | 29.95% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | 0.00% | 3.46% | 0.45% | 7.45% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | 0.00% | 6.25% | 1.40% | 2.99% | — | |
Based on: 10-K (reporting date: 2025-12-27), 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25).
1 2025 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 4,693 ÷ [(55,669 + 54,157) ÷ 2] = 8.55%
2 Click competitor name to see calculations.
The analysis reveals a significant fluctuation in cash-flow-statement-based aggregate accruals and the corresponding accruals ratio over the four-year period. Net operating assets demonstrate a consistent upward trend, while accrual patterns exhibit considerable volatility.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals were negative in 2022, registering at -4,244 US$ millions. A substantial shift occurred in 2023, with accruals turning positive at 610 US$ millions. This positive trend was short-lived, as accruals became negative again in 2024, reaching -299 US$ millions. The final year observed, 2025, shows a marked increase in positive accruals, totaling 4,693 US$ millions. This indicates a considerable change in the relationship between net income and cash flow from operations.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. In 2022, the ratio was -15.28%, indicating substantial negative accruals relative to net operating assets. The ratio improved significantly in 2023 to 1.17%, suggesting a reduced reliance on accruals to support reported earnings. A slight decline to -0.56% occurred in 2024. The most notable change is observed in 2025, with the accruals ratio reaching 8.55%. This substantial increase suggests a greater proportion of reported earnings are derived from accruals rather than cash flow, potentially warranting further investigation.
The volatility in the accruals ratio suggests potential shifts in earnings quality or accounting practices. The large positive value in 2025, following periods of negative or near-zero accruals, could indicate aggressive revenue recognition or delayed expense recognition. Further investigation into the underlying components of accruals is recommended to determine the drivers of these fluctuations and assess the sustainability of reported earnings.
The consistent growth in net operating assets, contrasted with the fluctuating accruals, highlights the importance of monitoring the relationship between asset growth and cash flow generation. The increasing accruals ratio in the final year suggests a potential divergence between reported profitability and actual cash inflows.