Stock Analysis on Net

Abbott Laboratories (NYSE:ABT)

$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

Abbott Laboratories, balance sheet computation of aggregate accruals

US$ in millions

Microsoft Excel
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: Investments, primarily bank time deposits and U.S. treasury bills
Operating assets
Operating Liabilities
Total liabilities
Less: Short-term borrowings
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
CVS Health Corp.
Elevance Health Inc.
Intuitive Surgical Inc.
Medtronic PLC
UnitedHealth Group Inc.
Balance-Sheet-Based Accruals Ratio, Sector
Health Care Equipment & Services
Balance-Sheet-Based Accruals Ratio, Industry
Health Care

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 demonstrated a consistent upward trend from 43,825 million US dollars at the end of 2021 to 54,059 million US dollars by the end of 2024. This represents a notable increase in operating assets over the four-year period, suggesting expansion in operational investment or asset utilization.
Balance-sheet-based Aggregate Accruals
The balance-sheet-based aggregate accruals showed a significant shift over the observed timeframe. Initially, the accruals were negative at -777 million US dollars in 2021 and improved to -317 million US dollars in 2022. However, there was a marked increase to positive values thereafter, reaching 2,719 million US dollars in 2023 and surging further to 7,832 million US dollars by the end of 2024. This indicates a transition from a negative to a substantially positive accruals position within the four years.
Balance-sheet-based Accruals Ratio
The accruals ratio, expressed as a percentage, followed a similar pattern to aggregate accruals. It started negative at -1.76% in 2021, improved to -0.73% in 2022, and then rose significantly to 6.06% in 2023. By 2024, the ratio had increased further to 15.62%. This sharp upward trajectory implies an increasing proportion of accruals relative to net operating assets, reflecting heightened earnings management or changes in accrual accounting policies and practices during the period.

Cash-Flow-Statement-Based Accruals Ratio

Abbott Laboratories, cash flow statement computation of aggregate accruals

US$ in millions

Microsoft Excel
Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Net earnings
Less: Net cash from 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
CVS Health Corp.
Elevance Health Inc.
Intuitive Surgical Inc.
Medtronic PLC
UnitedHealth Group Inc.
Cash-Flow-Statement-Based Accruals Ratio, Sector
Health Care Equipment & Services
Cash-Flow-Statement-Based Accruals Ratio, Industry
Health Care

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 steady increase over the four-year period. Starting at 43,825 million US dollars in 2021, the value slightly decreased to 43,508 million US dollars in 2022 but then rose to 46,227 million US dollars in 2023, followed by a significant increase to 54,059 million US dollars in 2024. This trend indicates a growing investment in operating assets over time.
Cash-Flow-Statement-Based Aggregate Accruals
The aggregate accruals demonstrate a notable shift during the period. In 2021, accruals were negative at -1,454 million US dollars, decreasing to -908 million US dollars in 2022, indicating lower non-cash adjustments relative to cash flow. However, this trend reverses in 2023, with accruals becoming positive at 1,595 million US dollars and substantially increasing to 7,182 million US dollars in 2024. Such a positive and rising accruals figure could denote increasing non-cash earnings components or changes in working capital management.
Cash-Flow-Statement-Based Accruals Ratio
The accruals ratio follows a similar pattern as aggregate accruals. It starts at a negative value of -3.29% in 2021, improving to -2.08% in 2022, which suggests a diminishing extent of negative accrual adjustments relative to net operating assets. The ratio turns positive in 2023 at 3.55%, then shows a pronounced increase to 14.32% in 2024. This rising ratio corroborates the increase in aggregate accruals and indicates a growing proportion of accruals in relation to net operating assets, which may impact earnings quality.