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
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
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Balance-Sheet-Based Accruals Ratio
Texas Instruments Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current portion of long-term debt | ||||||
| Less: Long-term debt, excluding current portion | ||||||
| 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. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Semiconductors & Semiconductor Equipment | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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 information presents a review of net operating assets, aggregate accruals, and the resulting accruals ratio over a four-year period. Net operating assets demonstrate a consistent upward trend throughout the period, increasing from US$14,245 million in 2022 to US$25,440 million in 2025. Aggregate accruals exhibit more volatility, peaking in 2023 before declining in subsequent years. Consequently, the balance-sheet-based accruals ratio fluctuates significantly.
- Net Operating Assets
- Net operating assets increased steadily each year. The largest absolute increase occurred between 2022 and 2023, adding US$5,300 million. Growth moderated in later years, but remained positive through 2025.
- Aggregate Accruals
- Aggregate accruals increased substantially from US$2,910 million in 2022 to US$5,300 million in 2023. Following this peak, accruals decreased to US$3,374 million in 2024 and further to US$2,521 million in 2025. This suggests a potential shift in the company’s working capital management or revenue recognition practices.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the trend in aggregate accruals. It rose from 22.75% in 2022 to a high of 31.37% in 2023, coinciding with the peak in accruals. A significant decline followed, with the ratio decreasing to 15.89% in 2024 and 10.43% in 2025. This decreasing ratio may indicate improved earnings quality, as a lower ratio generally suggests a smaller proportion of earnings derived from accruals rather than cash flow. However, the initial high value in 2023 warrants further investigation to understand the drivers behind the increased accruals.
The observed patterns suggest a dynamic relationship between operating asset growth and accrual management. The substantial increase in accruals in 2023, followed by a decline, requires further scrutiny to determine if it represents a temporary anomaly or a fundamental change in the company’s financial reporting practices. The decreasing accruals ratio in the latter two years is a positive sign, but should be considered in conjunction with the overall trend in net operating assets.
Cash-Flow-Statement-Based Accruals Ratio
Texas Instruments Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Cash flows from operating activities | ||||||
| Less: 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 | ||||||
| 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. | ||||||
| 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: 2025-12-31), 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).
1 2025 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 exhibited a consistent increase over the four-year period, rising from US$14,245 million in 2022 to US$25,440 million in 2025. Simultaneously, cash-flow-statement-based aggregate accruals demonstrated a notable shift in trend. Initially increasing from US$3,612 million in 2022 to US$4,452 million in 2023, accruals then decreased substantially to US$1,683 million in 2024, culminating in a negative value of -US$713 million in 2025.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio followed a corresponding pattern. It began at 28.24% in 2022, decreased to 26.35% in 2023, and then experienced a significant decline to 7.93% in 2024. By 2025, the ratio had become negative, registering at -2.95%. This indicates that cash flows from operations are increasingly covering operating asset increases without reliance on accruals, or conversely, that accruals are decreasing relative to operating assets.
The initial increase in aggregate accruals alongside net operating assets in 2022 and 2023 suggests a period of growth potentially funded, in part, by accruals. However, the subsequent reduction in accruals, and particularly the negative accruals ratio in 2025, warrants further investigation. A negative accruals ratio could indicate strong cash generation relative to accounting profits, efficient working capital management, or potentially, aggressive revenue recognition policies in prior periods now reversing. The substantial shift from positive to negative accruals in a short timeframe is a key observation requiring deeper scrutiny.
The trend suggests a transition from a reliance on accruals to fund operating asset growth to a position where operations are generating sufficient cash flow to support asset increases. The magnitude of the change in 2024 and 2025 is considerable and should be examined in the context of the company’s overall financial performance and industry dynamics.