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.
Paying user area
Try for free
Old Dominion Freight Line Inc. pages available for free this week:
- Common-Size Income Statement
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Revenues
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Old Dominion Freight Line Inc. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Balance-Sheet-Based Accruals Ratio
Old Dominion Freight Line Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current maturities of long-term debt | ||||||
| Less: Long-term debt, excluding current maturities | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Airlines Holdings Inc. | ||||||
| United Parcel Service Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= – =
3 2022 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.
The financial reporting quality measures demonstrate notable trends over the examined periods. Net operating assets have shown a consistent and significant upward trajectory, increasing each year from approximately $2.72 billion in 2019 to about $3.52 billion in 2022. This growth indicates that the company has been expanding its operating asset base steadily over the four-year span.
The balance-sheet-based aggregate accruals reveal volatility within this timeframe. Beginning with a positive value of $186.9 million in 2019, there was a marked decline to a negative figure of approximately $27.6 million in 2020. This negative value indicates a reduction in accruals relative to prior periods. However, the aggregate accruals subsequently rebounded strongly, reaching $368.2 million in 2021 and further increasing to $454.5 million in 2022. This sharp recovery and growth in accruals after the dip suggest variations in non-cash components of earnings and changes in working capital elements.
The balance-sheet-based accruals ratio reflects similar patterns. After a positive ratio of 7.11% in 2019, it turned negative to -1.02% in 2020, highlighting an unusual accrual pattern that year, possibly linked to adjustments or external influences affecting accrual accounting. The ratio then surged to 12.79% in 2021 and further rose to 13.81% in 2022, indicating a growing proportion of accruals relative to net operating assets. Such elevated accrual ratios may warrant closer scrutiny as they can impact earnings quality and reflect changes in accounting estimates or operations.
Overall, the data exhibits a steady increase in net operating assets accompanied by a period of accrual diminution in 2020, followed by a robust increase in both aggregate accruals and accrual ratios in subsequent years. These dynamics suggest shifts in the operational and accounting policies affecting accrual accounting, with potential implications for the analysis of earnings quality and financial stability going forward.
Cash-Flow-Statement-Based Accruals Ratio
Old Dominion Freight Line Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| 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 | ||||||
| FedEx Corp. | ||||||
| Uber Technologies Inc. | ||||||
| Union Pacific Corp. | ||||||
| United Airlines Holdings Inc. | ||||||
| United Parcel Service Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Transportation | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 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 reveals several notable trends in the financial reporting quality measures over the four-year period ending December 31, 2022.
- Net Operating Assets
- There is a consistent upward trend in net operating assets, increasing from approximately 2.72 billion US dollars in 2019 to about 3.52 billion US dollars in 2022. This represents an overall growth of approximately 29% over the period, indicating expansion in the operational asset base.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals increased significantly from 105 million US dollars in 2019 to a peak of 291 million in 2020. This was followed by a slight decrease to 277 million in 2021 and a further decline to 233 million in 2022. Despite the reductions in the last two years, the accruals remain more than double the 2019 level, suggesting higher levels of accruals activity compared to the start of the period.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio showed a similar pattern, rising sharply from 4% in 2019 to 10.76% in 2020, indicative of an increased proportion of accruals relative to net operating assets or cash flows. Subsequently, the ratio declined gradually to 9.62% in 2021 and further to 7.08% in 2022, yet stayed well above the initial 4% level. This suggests some moderation in accrual activity following the peak in 2020, but overall accrual levels remain elevated compared to the start of the period.
In summary, the financial data suggests a significant growth in net operating assets accompanied by elevated but fluctuating accrual activity over the analyzed timeframe. The peak in accruals observed in 2020 could reflect particular circumstances impacting earnings quality or accounting timing during that year, with partial reversion in subsequent years. Nonetheless, accrual levels in 2022 remain distinctly higher than those at the beginning of the period, which may warrant attention in the context of earnings quality assessment.