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
Caterpillar Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 87,476) | 81,943) | 82,793) | 78,324) | 78,453) | |
| Less: Cash and cash equivalents | 6,978) | 7,004) | 9,254) | 9,352) | 8,284) | |
| Operating assets | 80,498) | 74,939) | 73,539) | 68,972) | 70,169) | |
| Operating Liabilities | ||||||
| Total liabilities | 67,973) | 66,052) | 66,277) | 62,946) | 63,824) | |
| Less: Short-term borrowings | 4,643) | 5,957) | 5,404) | 2,015) | 5,166) | |
| Less: Long-term debt due within one year | 8,763) | 5,322) | 6,352) | 9,149) | 6,210) | |
| Less: Long-term debt due after one year | 24,472) | 25,714) | 26,033) | 25,999) | 26,281) | |
| Operating liabilities | 30,095) | 29,059) | 28,488) | 25,783) | 26,167) | |
| Net operating assets1 | 50,403) | 45,880) | 45,051) | 43,189) | 44,002) | |
| Balance-sheet-based aggregate accruals2 | 4,523) | 829) | 1,862) | (813) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 9.40% | 1.82% | 4.22% | -1.86% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Boeing Co. | -22.39% | -12.09% | 30.23% | 75.78% | — | |
| Eaton Corp. plc | 2.18% | 2.87% | 10.92% | -8.45% | — | |
| GE Aerospace | -50.58% | -7.82% | -33.29% | -8.79% | — | |
| Honeywell International Inc. | 7.21% | -1.99% | 9.04% | 2.69% | — | |
| Lockheed Martin Corp. | 2.60% | 15.67% | 23.38% | 5.01% | — | |
| RTX Corp. | -1.23% | 1.57% | 1.48% | 18.38% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Capital Goods | -5.90% | -0.33% | -0.06% | 7.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | -2.04% | 0.12% | 3.77% | 5.75% | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= 80,498 – 30,095 = 50,403
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 50,403 – 45,880 = 4,523
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 4,523 ÷ [(50,403 + 45,880) ÷ 2] = 9.40%
4 Click competitor name to see calculations.
| Financial ratio | Description | The company |
|---|---|---|
| Balance-sheet-based accruals ratio | Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets. | Using the balance-sheet-based accruals ratio, Caterpillar Inc. deteriorated earnings quality from 2022 to 2023. |
Cash-Flow-Statement-Based Accruals Ratio
Caterpillar Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Profit attributable to common stockholders | 10,335) | 6,705) | 6,489) | 2,998) | 6,093) | |
| Less: Net cash provided by operating activities | 12,885) | 7,766) | 7,198) | 6,327) | 6,912) | |
| Less: Net cash used for investing activities | (5,871) | (2,541) | (3,084) | (1,485) | (1,928) | |
| Cash-flow-statement-based aggregate accruals | 3,321) | 1,480) | 2,375) | (1,844) | 1,109) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 6.90% | 3.26% | 5.38% | -4.23% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Boeing Co. | -26.69% | -50.32% | -43.09% | 172.40% | — | |
| Eaton Corp. plc | 8.52% | 4.55% | 7.52% | -8.43% | — | |
| GE Aerospace | -8.42% | -15.92% | -53.22% | -20.57% | — | |
| Honeywell International Inc. | 5.80% | -0.79% | 2.16% | -1.79% | — | |
| Lockheed Martin Corp. | 3.08% | -1.36% | -10.24% | 4.50% | — | |
| RTX Corp. | -1.66% | 0.87% | -1.96% | -12.62% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Capital Goods | -0.94% | -5.98% | -13.86% | -1.61% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | 1.33% | -4.47% | -8.82% | -2.05% | — | |
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 3,321 ÷ [(50,403 + 45,880) ÷ 2] = 6.90%
2 Click competitor name to see calculations.
| Financial ratio | Description | The company |
|---|---|---|
| Cash-flow-statement-based accruals ratio | Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets. | Using the cash-flow-statement-based accruals ratio, Caterpillar Inc. deteriorated earnings quality from 2022 to 2023. |