Stock Analysis on Net

PepsiCo Inc. (NASDAQ:PEP)

$24.99

Financial Reporting Quality: Aggregate Accruals

Microsoft Excel

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

PepsiCo Inc., balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 28, 2024 Dec 30, 2023 Dec 31, 2022 Dec 25, 2021 Dec 26, 2020
Operating Assets
Total assets
Less: Cash and cash equivalents
Less: Short-term investments
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term debt obligations
Less: Long-term debt obligations, 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
Coca-Cola Co.
Mondelēz International Inc.
Philip Morris International Inc.
Balance-Sheet-Based Accruals Ratio, Sector
Food, Beverage & Tobacco
Balance-Sheet-Based Accruals Ratio, Industry
Consumer Staples

Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).

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 gradual upward trend over the four-year period. Beginning at 50,497 million US dollars in 2021, the value increased marginally to 50,996 million in 2022. This was followed by a more pronounced rise to 52,739 million in 2023 and a further increase to 53,211 million in 2024, indicating steady growth in the company's operating asset base.
Balance-Sheet-Based Aggregate Accruals
The balance-sheet-based aggregate accruals show significant fluctuations across the years. Starting at 2,346 million US dollars in 2021, aggregate accruals fell sharply to 499 million in 2022, then surged again to 1,743 million in 2023, before decreasing once more to 472 million in 2024. This volatility suggests variability in non-cash components impacting earnings or changes in the timing of revenue and expense recognition.
Balance-Sheet-Based Accruals Ratio
The accruals ratio, expressed as a percentage of net operating assets, follows a similar fluctuating pattern but remains at relatively moderate levels. It began at 4.76% in 2021, dropped steeply to 0.98% in 2022, increased to 3.36% in 2023, and then fell again to 0.89% in 2024. This pattern reinforces the observation of inconsistent accrual activity, which may affect the quality of earnings and warrants close monitoring.

Cash-Flow-Statement-Based Accruals Ratio

PepsiCo Inc., cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 28, 2024 Dec 30, 2023 Dec 31, 2022 Dec 25, 2021 Dec 26, 2020
Net income attributable to PepsiCo
Less: Net cash provided by operating activities
Less: Net cash used for investing activities
Cash-flow-statement-based aggregate accruals
Financial Ratio
Cash-flow-statement-based accruals ratio1
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Competitors2
Coca-Cola Co.
Mondelēz International Inc.
Philip Morris International Inc.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Food, Beverage & Tobacco
Cash-Flow-Statement-Based Accruals Ratio, Industry
Consumer Staples

Based on: 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26).

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 analysis of the financial reporting quality metrics over the four-year period reveals several notable trends and patterns.

Net Operating Assets
The net operating assets exhibit a steady increase each year, starting from approximately 50,497 million US dollars in 2021, rising slightly to 50,996 million in 2022, further increasing to 52,739 million in 2023, and reaching 53,211 million in 2024. This gradual growth indicates a consistent expansion in the company's operating asset base over the period under review.
Cash-flow-statement-based Aggregate Accruals
The aggregate accruals derived from the cash flow statement show a significant shift during the period. In 2021, the figure was negative, at -729 million US dollars, indicating potential cash flow timing differences or write-offs. This changes to positive values starting in 2022, with 529 million, then rising substantially to 1,127 million in 2023, and almost doubling again to 2,543 million in 2024. The rising aggregate accruals may suggest increasing differences between accounting earnings and cash flows, which could have implications for earnings quality.
Cash-flow-statement-based Accruals Ratio
The accruals ratio, expressed as a percentage, mirrors the pattern seen in aggregate accruals. It moves from a negative ratio of -1.48% in 2021 to positive values starting with 1.04% in 2022, increasing to 2.17% in 2023, and reaching 4.8% in 2024. This upward trajectory reinforces the observation of growing accruals relative to net operating assets, suggesting a trend towards higher accrual-based earnings components in recent years.

In summary, the company demonstrates a consistent increase in net operating assets, indicating growth in operational capacity. Concurrently, the aggregate accruals and their ratio have shifted from negative to substantially positive and increasing values, which may be indicative of a rising portion of earnings attributable to accruals rather than cash flows. This trend warrants attention to assess its impact on earnings quality and the sustainability of reported profits.