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.
Balance-Sheet-Based Accruals Ratio
AmerisourceBergen Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 56,560,616) | 57,337,805) | 44,274,830) | 39,171,980) | 37,669,838) | 35,316,470) | |
| Less: Cash and cash equivalents | 3,388,189) | 2,547,142) | 4,597,746) | 3,374,194) | 2,492,516) | 2,435,115) | |
| Operating assets | 53,172,427) | 54,790,663) | 39,677,084) | 35,797,786) | 35,177,322) | 32,881,355) | |
| Operating Liabilities | |||||||
| Total liabilities | 56,489,343) | 56,753,394) | 45,114,466) | 36,178,774) | 34,619,877) | 33,252,009) | |
| Less: Short-term debt | 1,070,473) | 300,213) | 501,259) | 139,012) | 151,657) | 12,121) | |
| Less: Long-term debt, net of current portion | 4,632,360) | 6,383,711) | 3,618,261) | 4,033,880) | 4,158,532) | 3,429,934) | |
| Operating liabilities | 50,786,510) | 50,069,470) | 40,994,946) | 32,005,882) | 30,309,688) | 29,809,954) | |
| Net operating assets1 | 2,385,917) | 4,721,193) | (1,317,862) | 3,791,904) | 4,867,634) | 3,071,401) | |
| Balance-sheet-based aggregate accruals2 | (2,335,276) | 6,039,055) | (5,109,766) | (1,075,730) | 1,796,233) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | -65.72% | 354.89% | -413.07% | -24.84% | 45.25% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Abbott Laboratories | -0.73% | -1.76% | — | — | — | — | |
| Elevance Health Inc. | 0.32% | 14.93% | — | — | — | — | |
| Intuitive Surgical Inc. | -10.21% | 50.02% | — | — | — | — | |
| Medtronic PLC | -1.37% | 3.72% | — | — | — | — | |
| UnitedHealth Group Inc. | 17.32% | 4.32% | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Health Care Equipment & Services | 6.46% | 5.32% | 200.00% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Health Care | 5.29% | 5.94% | 200.00% | — | — | — | |
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= 53,172,427 – 50,786,510 = 2,385,917
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= 2,385,917 – 4,721,193 = -2,335,276
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -2,335,276 ÷ [(2,385,917 + 4,721,193) ÷ 2] = -65.72%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibit significant volatility over the analyzed periods. Initially, there is a decline from approximately 4.87 billion US dollars in 2018 to about 3.79 billion US dollars in 2019. This is followed by a sharp negative value in 2020, indicating a deficit of roughly 1.32 billion US dollars. The figure recovers in 2021, reaching around 4.72 billion US dollars, but then declines again in 2022 to approximately 2.39 billion US dollars. This pattern suggests considerable fluctuations in the company's net operating asset base, potentially reflecting changes in operational efficiency or asset management during these years.
- Balance-sheet-based Aggregate Accruals
- The balance-sheet-based aggregate accruals show a similarly volatile trend with substantial changes in magnitude and direction. There is a large positive accrual amounting to approximately 1.80 billion US dollars in 2018, which turns negative in both 2019 and 2020 with values near -1.08 billion and -5.11 billion US dollars, respectively. The accruals swing back to a positive figure close to 6.04 billion US dollars in 2021, followed by another negative value of about -2.34 billion US dollars in 2022. These shifts imply significant fluctuations in the timing of revenue and expense recognition, which could affect earnings quality and predictability.
- Balance-sheet-based Accruals Ratio
- The accruals ratio demonstrates extreme variability, indicating substantial inconsistency in the proportion of accruals relative to net operating assets. The ratio starts at a high positive level of approximately 45.25% in 2018, moves into negative territory at -24.84% in 2019, and then shows an exceptionally large negative figure of -413.07% in 2020. In 2021, the ratio spikes dramatically to about 354.89%, before dropping again to -65.72% in 2022. These extreme fluctuations are indicative of potentially aggressive or highly irregular accrual accounting practices, which may impact the reliability and quality of annual financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
AmerisourceBergen Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | ||
|---|---|---|---|---|---|---|---|
| Net income (loss) attributable to AmerisourceBergen Corporation | 1,698,820) | 1,539,932) | (3,408,716) | 855,365) | 1,658,405) | 364,484) | |
| Less: Net cash provided by operating activities | 2,703,088) | 2,666,586) | 2,207,040) | 2,344,023) | 1,411,388) | 1,504,138) | |
| Less: Net cash used in investing activities | (368,437) | (6,141,577) | (379,871) | (375,832) | (1,111,114) | (498,041) | |
| Cash-flow-statement-based aggregate accruals | (635,831) | 5,014,923) | (5,235,885) | (1,112,826) | 1,358,131) | (641,613) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | -17.89% | 294.71% | -423.27% | -25.70% | 34.21% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Abbott Laboratories | -2.08% | -3.29% | — | — | — | — | |
| Elevance Health Inc. | 8.35% | 30.34% | — | — | — | — | |
| Intuitive Surgical Inc. | -20.88% | 33.51% | — | — | — | — | |
| Medtronic PLC | -0.97% | 0.35% | — | — | — | — | |
| UnitedHealth Group Inc. | 21.73% | 5.77% | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Health Care Equipment & Services | 8.70% | 5.82% | 6.22% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Health Care | 4.25% | 7.53% | 17.33% | — | — | — | |
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -635,831 ÷ [(2,385,917 + 4,721,193) ÷ 2] = -17.89%
2 Click competitor name to see calculations.
The analysis of the annual financial reporting quality measures reveals significant fluctuations and shifts over the observed periods.
- Net Operating Assets
- The net operating assets exhibit considerable volatility across the years. Starting from a positive value of approximately 4.87 billion US dollars in 2018, there is a marked decline to about 3.79 billion in 2019. The trend reverses dramatically in 2020 with a negative figure nearing -1.32 billion, indicating potential operational or asset-related challenges during that year. Subsequently, the net operating assets recover strongly in 2021 to around 4.72 billion but decline again to approximately 2.39 billion in 2022. This pattern suggests instability in the company's operating asset base, possibly reflecting changes in asset management or operating conditions.
- Cash-Flow-Statement-Based Aggregate Accruals
- The aggregate accruals based on the cash flow statement show notable oscillations with sizable amounts involved. In 2018, accruals are positive at about 1.36 billion US dollars, switching to a negative value close to -1.11 billion in 2019, and plunging further to nearly -5.24 billion in 2020. The year 2021 again sees a reversal to a substantial positive accrual of approximately 5.01 billion, followed by a decrease to a negative accrual near -0.64 billion in 2022. Such volatility might indicate variations in the company's earnings quality and the timing of cash flows relative to reported earnings.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio, expressed in percentage terms, accentuates the dramatic shifts observed in aggregate accruals. Beginning at 34.21% in 2018, the ratio turns negative to approximately -25.7% in 2019, before descending sharply to -423.27% in 2020, which suggests significant discrepancies between accruals and cash flow components during that year. The ratio then swings to a high positive level of 294.71% in 2021, reflecting a substantial reversal, and ends at roughly -17.89% in 2022. These wide fluctuations in the accruals ratio may be indicative of irregularities or significant changes in the accrual components in relation to cash flows, impacting the reliability of reported earnings.
Overall, the financial quality measures illustrate a pattern of high variability and abrupt changes, reflecting potentially inconsistent earnings quality and challenges in asset management over the analyzed timeframe.