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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- Income Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Return on Assets (ROA) since 2012
- Price to Sales (P/S) since 2012
- Analysis of Revenues
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Meta Platforms 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: Finance lease liabilities, current | ||||||
| Less: Long-term debt | ||||||
| Less: Finance lease liabilities, 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 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Netflix Inc. | ||||||
| Take-Two Interactive Software 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 have shown a consistent upward trend over the four-year period. Starting at 77,462 million US dollars at the end of 2021, there was a significant increase to 95,585 million in 2022, followed by further growth to 106,840 million in 2023. The largest increase occurred between 2023 and 2024, reaching 134,357 million US dollars. This steady expansion in net operating assets suggests an ongoing investment in operating assets relative to operating liabilities.
- Balance-sheet-based aggregate accruals
- The aggregate accruals exhibited notable fluctuations throughout the period. The value rose sharply from 10,603 million US dollars in 2021 to 18,123 million in 2022, then decreased substantially to 11,255 million in 2023. However, a pronounced increase occurred again in 2024, with aggregate accruals more than doubling to 27,517 million US dollars. This pattern indicates variability in accrual accounting components, reflecting changes in the timing of revenue recognition and expenses.
- Balance-sheet-based accruals ratio
- The accruals ratio followed a similar fluctuating pattern that mirrors the changes in aggregate accruals in relation to net operating assets. The ratio rose from 14.69% in 2021 to a higher 20.95% in 2022, declined to 11.12% in 2023, and subsequently increased again to 22.82% in 2024. The volatility in the accruals ratio highlights periods of increased accrual-based earnings management or varying underlying business dynamics affecting accrual components.
Cash-Flow-Statement-Based Accruals Ratio
Meta Platforms 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 | ||||||
| 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 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Netflix Inc. | ||||||
| Take-Two Interactive Software 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.
- Net Operating Assets
- The net operating assets exhibit a consistent upward trend over the analyzed period. Starting at 77,462 million US dollars as of December 31, 2021, the figure increases to 95,585 million in 2022, followed by 106,840 million in 2023, and reaches 134,357 million by the end of 2024. This growth signifies an expansion in the company’s operational asset base, indicating potentially increased operational capacity or investment.
- Cash-Flow-Statement-Based Aggregate Accruals
- The cash-flow-statement-based aggregate accruals display substantial volatility during the period. The value starts negative at -10,743 million US dollars in 2021, moves to a positive 1,695 million in 2022, drops back to a negative -7,520 million in 2023, and then rises sharply to a positive 18,182 million by 2024. Such fluctuations suggest variability in the timing differences between earnings and cash flows, which may point to changes in working capital management or earnings quality over time.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrors the volatility observed in aggregate accruals. It begins at -14.89% in 2021, indicating that accruals reduced net operating assets relative to cash flows that year. The ratio reverses to a positive 1.96% in 2022, then declines again to -7.43% in 2023, and significantly increases to 15.08% in 2024. The fluctuation in this ratio highlights variations in the relationship between accruals and cash flows, which may impact the assessment of earnings quality, with the notably high ratio in 2024 potentially indicating increased accrual-based earnings relative to cash flows.