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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Charter Communications Inc. pages available for free this week:
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Debt to Equity since 2010
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Balance-Sheet-Based Accruals Ratio
Charter Communications 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 | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings | ||||||
| Less: Current portion of long-term debt | ||||||
| Less: Long-term debt, less current portion | ||||||
| Less: Equipment installment plan financing facility | ||||||
| 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. | ||||||
| Walt Disney Co. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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 steady upward trend over the four-year period. Beginning at approximately 109,116 million US dollars in 2021, there is a consistent increase each year, reaching 115,011 million US dollars by the end of 2024. This gradual rise suggests an expansion in the company's operating asset base.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals show notable volatility across the years. Initially, in 2021, the figure stands at a negative 2,919 million US dollars, indicating a significant write-down or reversal of accruals. This turns positive in 2022 at 391 million US dollars and rises sharply in 2023 and 2024 to 2,704 and 2,800 million US dollars, respectively. The shift from a large negative to increasing positive values reflects a material change in the accrual accounting behavior.
- Balance-Sheet-Based Accruals Ratio
- Mirroring the aggregate accruals, the accruals ratio moves from a negative 2.64% in 2021 to positive territory starting in 2022 at 0.36%. It continues to climb substantially to 2.44% in 2023 and remains relatively stable at 2.46% in 2024. This progression indicates a growing proportion of accrual-based adjustments relative to net operating assets, potentially signaling changes in earnings quality or accounting estimates.
Cash-Flow-Statement-Based Accruals Ratio
Charter Communications 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 attributable to Charter shareholders | ||||||
| Less: Net cash flows from operating activities | ||||||
| Less: Net cash flows from 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. | ||||||
| Walt Disney Co. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Media & Entertainment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
Based on: 10-K (reporting date: 2024-12-31), 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.
The data indicates several noteworthy trends in the financial quality measures over the four-year period ending December 31, 2024.
- Net Operating Assets (US$ in millions)
- The net operating assets have shown a consistent upward trajectory throughout the period. Starting at 109,116 million dollars in 2021, there was a slight increase to 109,507 million in 2022, followed by more pronounced growth to 112,211 million in 2023 and further to 115,011 million in 2024. This reflects a steady expansion in the company’s operating asset base, suggesting ongoing investment or accumulation of net operating resources.
- Cash-Flow-Statement-Based Aggregate Accruals (US$ in millions)
- Aggregate accruals based on the cash flow statement exhibit a noticeable shift from negative to positive values over the timeframe. The figure started at negative 3,831 million dollars in 2021, decreasing substantially in magnitude to negative 756 million in 2022. Subsequently, the accruals turned positive, reaching 1,251 million in 2023 and slightly increasing to 1,307 million in 2024. This change may suggest improvements in earnings quality, with accruals transitioning from consumption of cash flow to generation or more conservative recognition of revenues and expenses.
- Cash-Flow-Statement-Based Accruals Ratio (%)
- Mirroring the aggregate accruals trend, the accruals ratio rose from -3.46% in 2021 to a near-neutral level of -0.69% in 2022. It then moved into positive territory, reaching 1.13% in 2023 and marginally increasing to 1.15% in 2024. This ratio indicates the proportion of accruals relative to net operating assets. The shift from negative to positive values typically signals a shift in the balance between cash flows and accounting accruals, implying that the company’s earnings may be increasingly supported by accrual-based accounting rather than pure cash flows.
Overall, the trends in the data reflect steady growth in net operating assets accompanied by a significant shift in accrual patterns from negative to positive values. These changes could denote improved asset management and evolving accounting dynamics affecting earnings quality. The positive accruals ratio in the later years could require further examination to assess its impact on the reliability of reported earnings and cash flow alignment.