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
Applied Materials Inc., balance sheet computation of aggregate accruals
US$ in millions
| Oct 27, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Oct 25, 2020 | Oct 27, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 34,409) | 30,729) | 26,726) | 25,825) | 22,353) | 19,024) | |
| Less: Cash and cash equivalents | 8,022) | 6,132) | 1,995) | 4,995) | 5,351) | 3,129) | |
| Less: Short-term investments | 1,449) | 737) | 586) | 464) | 387) | 489) | |
| Operating assets | 24,938) | 23,860) | 24,145) | 20,366) | 16,615) | 15,406) | |
| Operating Liabilities | |||||||
| Total liabilities | 15,408) | 14,380) | 14,532) | 13,578) | 11,775) | 10,810) | |
| Less: Short-term debt | 100) | 100) | —) | —) | —) | —) | |
| Less: Current portion of long-term debt | 699) | —) | —) | —) | —) | 600) | |
| Less: Finance lease liabilities, current | —) | 102) | —) | —) | —) | —) | |
| Less: Long-term debt, net of current portion | 5,460) | 5,461) | 5,457) | 5,452) | 5,448) | 4,713) | |
| Operating liabilities | 9,149) | 8,717) | 9,075) | 8,126) | 6,327) | 5,497) | |
| Net operating assets1 | 15,789) | 15,143) | 15,070) | 12,240) | 10,288) | 9,909) | |
| Balance-sheet-based aggregate accruals2 | 646) | 73) | 2,830) | 1,952) | 379) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 4.18% | 0.48% | 20.73% | 17.33% | 3.75% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Advanced Micro Devices Inc. | — | 2.36% | 169.75% | 8.05% | 72.69% | — | |
| Analog Devices Inc. | -2.83% | 0.03% | -2.94% | 90.70% | -2.85% | — | |
| Broadcom Inc. | — | -1.58% | -5.37% | -8.72% | 8.42% | 27.77% | |
| First Solar Inc. | — | 39.98% | -23.82% | 7.60% | 17.40% | — | |
| Intel Corp. | — | 13.69% | 10.73% | 11.61% | 0.01% | — | |
| KLA Corp. | -1.32% | 3.95% | 21.25% | 3.62% | -4.49% | — | |
| Lam Research Corp. | -2.70% | 1.57% | 16.02% | 8.38% | 9.01% | — | |
| Micron Technology Inc. | 5.22% | 0.78% | 12.07% | 11.51% | 7.56% | — | |
| Monolithic Power Systems Inc. | — | -2.44% | 56.82% | 33.12% | 15.48% | — | |
| NVIDIA Corp. | 29.90% | 18.88% | 28.31% | 115.40% | -16.93% | — | |
| Qualcomm Inc. | 7.33% | -5.53% | 68.49% | 22.56% | 20.94% | — | |
| Texas Instruments Inc. | — | 31.37% | 22.75% | 18.48% | 1.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Semiconductors & Semiconductor Equipment | 0.00% | 6.66% | 24.19% | 19.38% | 4.74% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 9.05% | 21.74% | 21.30% | 2.81% | — | |
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 24,938 – 9,149 = 15,789
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 15,789 – 15,143 = 646
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 646 ÷ [(15,789 + 15,143) ÷ 2] = 4.18%
4 Click competitor name to see calculations.
| Financial ratio | Description | The company |
|---|---|---|
| Balance-sheet-based accruals ratio | Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets. | Using the balance-sheet-based accruals ratio, Applied Materials Inc. deteriorated earnings quality from 2023 to 2024. |
Cash-Flow-Statement-Based Accruals Ratio
Applied Materials Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Oct 27, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Oct 25, 2020 | Oct 27, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | 7,177) | 6,856) | 6,525) | 5,888) | 3,619) | 2,706) | |
| Less: Cash provided by operating activities | 8,677) | 8,700) | 5,399) | 5,442) | 3,804) | 3,247) | |
| Less: Cash used in investing activities | (2,327) | (1,535) | (1,357) | (1,216) | (130) | (443) | |
| Cash-flow-statement-based aggregate accruals | 827) | (309) | 2,483) | 1,662) | (55) | (98) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 5.35% | -2.05% | 18.18% | 14.75% | -0.54% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Advanced Micro Devices Inc. | — | 1.17% | -15.28% | 8.10% | 83.38% | — | |
| Analog Devices Inc. | -2.71% | -0.57% | -2.54% | -11.85% | -3.72% | — | |
| Broadcom Inc. | — | -6.71% | -8.94% | -12.34% | 3.65% | 18.25% | |
| First Solar Inc. | — | 16.30% | 7.04% | 7.84% | 13.21% | — | |
| Intel Corp. | — | 11.35% | 2.75% | 15.15% | 6.75% | — | |
| KLA Corp. | 16.82% | 3.66% | 18.30% | 9.27% | -7.11% | — | |
| Lam Research Corp. | -5.83% | -1.71% | 12.43% | 3.89% | 6.35% | — | |
| Micron Technology Inc. | 1.18% | -2.52% | 11.37% | 10.01% | 5.45% | — | |
| Monolithic Power Systems Inc. | — | -3.49% | 28.08% | 67.59% | -18.64% | — | |
| NVIDIA Corp. | 52.67% | -47.90% | 73.13% | 233.25% | -225.09% | — | |
| Qualcomm Inc. | 5.53% | -14.57% | 46.91% | 15.61% | 48.48% | — | |
| Texas Instruments Inc. | — | 26.35% | 28.24% | 29.95% | 4.03% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Semiconductors & Semiconductor Equipment | 0.00% | 0.61% | 7.49% | 12.38% | 3.75% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 0.00% | 1.18% | 3.88% | 10.53% | -8.51% | — | |
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 827 ÷ [(15,789 + 15,143) ÷ 2] = 5.35%
2 Click competitor name to see calculations.
| Financial ratio | Description | The company |
|---|---|---|
| Cash-flow-statement-based accruals ratio | Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets. | Using the cash-flow-statement-based accruals ratio, Applied Materials Inc. deteriorated earnings quality from 2023 to 2024. |