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: Assets
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Enterprise Value (EV)
- Return on Equity (ROE) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
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Balance-Sheet-Based Accruals Ratio
Amazon.com Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of lease liabilities, finance leases | ||||||
| Less: Current portion of long-term debt | ||||||
| Less: Long-term lease liabilities, finance leases, excluding current portion | ||||||
| Less: Long-term debt, excluding current portion | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Home Depot Inc. | ||||||
| Lowe’s Cos. Inc. | ||||||
| TJX Cos. Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Discretionary Distribution & Retail | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | ||||||
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
= – =
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.
- Net Operating Assets
- The net operating assets exhibit a consistent upward trend over the four-year period. Starting at 116,184 million US dollars in 2021, the figure rises to 161,949 million in 2022, continues to increase to 194,012 million in 2023, and reaches 253,010 million by the end of 2024. This suggests a significant expansion in the operating asset base over the reported years.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals demonstrate fluctuations across the timeframe. In 2021, the accruals stand at 45,771 million US dollars, remaining virtually unchanged in 2022 at 45,765 million. However, there is a noticeable decrease to 32,063 million in 2023, followed by a marked increase to 58,998 million in 2024. This fluctuation indicates variability in the accrual components over the years.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, representing the relationship between aggregate accruals and net operating assets, shows a downward trend initially, moving from 49.06% in 2021 to 32.91% in 2022, and further decreasing to 18.01% in 2023. However, in 2024, the ratio rises again to 26.4%. This pattern reflects a contraction in accruals relative to net operating assets over three years, followed by a partial recovery in the final year.
Cash-Flow-Statement-Based Accruals Ratio
Amazon.com Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income (loss) | ||||||
| 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 | ||||||
| Home Depot Inc. | ||||||
| Lowe’s Cos. Inc. | ||||||
| TJX Cos. Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Discretionary Distribution & Retail | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | ||||||
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 × ÷ [( + ) ÷ 2] =
2 Click competitor name to see calculations.
- Net Operating Assets
- There is a clear upward trend in net operating assets over the four-year period. Starting at 116,184 million US dollars in 2021, the figure rises steadily each year, reaching 253,010 million US dollars by the end of 2024. This represents more than a doubling of net operating assets within four years, indicating significant growth in the company's investment in operating resources and possibly expansion activities.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show a volatile pattern over the period. In 2021, the item was strongly positive at 45,191 million US dollars, suggesting a high level of accrual accounting adjustments relative to cash flows. However, it sharply declines to a negative value in 2022 (-11,873 million), followed by a smaller negative figure in 2023 (-4,688 million). In 2024, the accruals return to positive territory at 37,713 million. This fluctuation could indicate significant changes in the timing of revenue recognition and expense matching, potentially reflecting variations in earnings quality or the impact of non-cash items.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio corroborates the pattern seen in aggregate accruals. In 2021, the ratio is notably high at 48.44%, indicating that a substantial portion of reported earnings could be attributed to accruals rather than cash flows. The ratio then sharply drops to -8.54% in 2022 and -2.63% in 2023, both negative, implying that cash flows exceeded accrual earnings during these years. By 2024, the ratio rises again to 16.87%, though it remains considerably lower than the 2021 peak. These shifts suggest fluctuations in earnings quality, with 2021 showing potential signs of more aggressive accrual accounting, while 2022 and 2023 indicate a possible improvement or correction in the alignment of accruals and cash-based earnings.