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-Based Accruals Ratio
Enphase Energy Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Restricted cash | ||||||
| Less: Marketable securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Debt, current | ||||||
| Less: Debt, non-current | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= – =
3 2023 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 display a consistent upward trajectory over the four-year period. Starting from US$135,479 thousand in 2020, there is a significant increase to US$451,163 thousand in 2021. This growth continues in subsequent periods, reaching US$503,087 thousand in 2022 and further rising to US$582,328 thousand by the end of 2023. The steady increase suggests continuous expansion in operational resources or investments.
- Balance-Sheet-Based Aggregate Accruals
- The balance-sheet-based aggregate accruals exhibit notable volatility during the examined timeframe. Initially, there is a substantial rise from US$53,833 thousand in 2020 to a peak of US$315,684 thousand in 2021. Subsequently, a sharp decline occurs in 2022 with values dropping to US$51,924 thousand, followed by a moderate increase to US$79,241 thousand in 2023. This variability indicates fluctuations in non-cash components or adjustments within the balance sheet that may affect earnings quality.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the variability observed in aggregate accruals but also reflects relative changes compared to net operating assets. The ratio escalates dramatically from 49.59% in 2020 to 107.62% in 2021, suggesting a disproportionate increase in accruals compared to operating assets during that year. In 2022, the ratio decreases sharply to 10.88%, indicative of a significant reduction in accruals relative to assets. A slight increase to 14.6% in 2023 is seen, yet the ratio remains substantially lower than the 2020 and 2021 peaks. These fluctuations could imply changes in earnings quality, with 2021 possibly having lower quality due to high accruals, and subsequent years showing improvement.
Cash-Flow-Statement-Based Accruals Ratio
Enphase Energy Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| 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 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 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
- The net operating assets demonstrate a consistent upward trend over the four-year period. Starting at $135,479 thousand in 2020, there is a significant increase to $451,163 thousand in 2021, followed by more moderate increases in 2022 and 2023, reaching $503,087 thousand and $582,328 thousand respectively.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals exhibit substantial volatility. In 2020, the figure is negative at -$56,771 thousand, which reverses dramatically to a positive value of $1,012,968 thousand in 2021. This is followed by a sharp decline to $24,451 thousand in 2022 and a moderate increase again to $108,511 thousand in 2023. The data indicates large fluctuations in accruals affecting cash flows during this timeframe.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio corresponds with the volatility observed in aggregate accruals. It starts deeply negative at -52.29% in 2020, spikes to an exceptionally high positive ratio of 345.34% in 2021, before decreasing sharply to 5.12% in 2022 and slightly rising to 19.99% in 2023. This pattern suggests considerable variation in the relationship between accruals and cash flows over the years, reflecting potential changes in earnings quality or financial management practices.