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
Chevron Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 256,938) | 261,632) | 257,709) | 239,535) | 239,790) | |
| Less: Cash and cash equivalents | 6,781) | 8,178) | 17,678) | 5,640) | 5,596) | |
| Less: Time deposits | 4) | —) | —) | —) | —) | |
| Less: Marketable securities | —) | 45) | 223) | 35) | 31) | |
| Operating assets | 250,153) | 253,409) | 239,808) | 233,860) | 234,163) | |
| Operating Liabilities | ||||||
| Total liabilities | 103,781) | 99,703) | 97,467) | 99,595) | 107,064) | |
| Less: Short-term debt | 4,406) | 529) | 1,964) | 256) | 1,548) | |
| Less: Long-term debt, excluding debt due within one year | 20,135) | 20,307) | 21,375) | 31,113) | 42,767) | |
| Operating liabilities | 79,240) | 78,867) | 74,128) | 68,226) | 62,749) | |
| Net operating assets1 | 170,913) | 174,542) | 165,680) | 165,634) | 171,414) | |
| Balance-sheet-based aggregate accruals2 | (3,629) | 8,862) | 46) | (5,780) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -2.10% | 5.21% | 0.03% | -3.43% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| ConocoPhillips | 29.59% | 10.61% | -5.86% | 44.50% | — | |
| Exxon Mobil Corp. | 26.07% | 3.91% | -1.19% | -4.87% | — | |
| Occidental Petroleum Corp. | 18.30% | -0.56% | 3.65% | -11.15% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | 17.00% | 4.71% | -0.84% | -0.16% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | 16.21% | 4.84% | -0.61% | -0.16% | — | |
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
= 250,153 – 79,240 = 170,913
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 170,913 – 174,542 = -3,629
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -3,629 ÷ [(170,913 + 174,542) ÷ 2] = -2.10%
4 Click competitor name to see calculations.
The analysis of the annual financial reporting quality measures reveals fluctuating trends over the four-year period ending in 2024.
- Net Operating Assets
- Net operating assets demonstrated a generally increasing pattern from 2021 to 2023, rising from 165,634 million US dollars to 174,542 million US dollars. However, a slight decline is observed in 2024, where the figure decreased to 170,913 million US dollars. This indicates a peak in asset accumulation in 2023 followed by a moderation in the following year.
- Balance-Sheet-Based Aggregate Accruals
- This measure shows considerable volatility over the period. In 2021, there was a negative value of -5,780 million US dollars, minimal positive accruals in 2022 at 46 million US dollars, followed by a substantial increase to 8,862 million US dollars in 2023. The year 2024 saw a reversal back into negative territory at -3,629 million US dollars. Such fluctuations suggest varying levels of earnings management or operational adjustments affecting accruals.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrors the aggregate accruals' volatility. It started with a negative ratio of -3.43% in 2021, barely positive at 0.03% in 2022, sharply increasing to 5.21% in 2023, and again declining to -2.1% in 2024. The sharp increase in 2023 potentially indicates increased accruals relative to net operating assets, which may affect the quality of earnings. The subsequent decline in 2024 suggests a return to lower or negative accrual levels relative to operating assets.
In summary, the data suggest a period marked by significant shifts in accrual-based measures, highlighting potential changes in earnings quality or operational dynamics over the four years. The peak in accruals and accrual ratio in 2023 followed by a decline in 2024 could warrant further investigation into the underlying operational or accounting events during these years.
Cash-Flow-Statement-Based Accruals Ratio
Chevron Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Chevron Corporation | 17,661) | 21,369) | 35,465) | 15,625) | (5,543) | |
| Less: Net cash provided by operating activities | 31,492) | 35,609) | 49,602) | 29,187) | 10,577) | |
| Less: Net cash used for investing activities | (8,936) | (15,232) | (12,108) | (5,865) | (6,965) | |
| Cash-flow-statement-based aggregate accruals | (4,895) | 992) | (2,029) | (7,697) | (9,155) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -2.83% | 0.58% | -1.22% | -4.57% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| ConocoPhillips | 0.37% | 5.11% | -1.56% | -0.78% | — | |
| Exxon Mobil Corp. | -0.55% | -0.04% | -2.93% | -6.69% | — | |
| Occidental Petroleum Corp. | 11.03% | -1.30% | 2.84% | -13.52% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | -0.02% | 0.66% | -1.62% | -6.08% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | 0.15% | 0.69% | -1.32% | -6.12% | — | |
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 × -4,895 ÷ [(170,913 + 174,542) ÷ 2] = -2.83%
2 Click competitor name to see calculations.
The analysis of the financial reporting quality measures over the four-year period reveals several notable trends.
- Net operating assets
- The net operating assets increased marginally from 165,634 million US dollars in 2021 to 165,680 million US dollars in 2022, indicating stability during that period. A more noticeable rise occurred in 2023, reaching 174,542 million US dollars, suggesting expansion or accumulation of operating assets. The figure then slightly decreased in 2024 to 170,913 million US dollars, which may reflect some asset disposition or revaluation but still remains higher than the initial years.
- Cash-flow-statement-based aggregate accruals
- This measure showed considerable volatility over the time span. In 2021, the aggregate accruals were significantly negative at -7,697 million US dollars, indicating a large disconnect between earnings and cash flows, which decreased in magnitude to -2,029 million in 2022. Interestingly, in 2023, the accruals turned positive at 992 million US dollars, suggesting a reversal or correction in accrual accounting. However, in 2024, they reverted to negative at -4,895 million US dollars, implying renewed divergence between accruals and cash flows. This fluctuation suggests variability in earnings quality or timing differences in cash recognition.
- Cash-flow-statement-based accruals ratio
- The accruals ratio aligns with the pattern of aggregate accruals, starting at -4.57% in 2021, moving closer to zero at -1.22% in 2022, and becoming positive at 0.58% in 2023. By 2024, it declined again to -2.83%. The movement of this ratio toward zero suggests temporary improvement in the quality of earnings relative to cash flows in 2022 and 2023, but the drop in 2024 indicates a reversal back to poorer alignment. The negative values generally indicate that accruals reduce the quality of earnings due to higher estimated non-cash components.
Overall, the trends indicate relative stability in operating asset levels with some growth in 2023, while the accrual figures and related ratios show fluctuations that may affect the consistency of earnings quality. The oscillations in accruals suggest that careful attention should be paid to the underlying accounting policies or external factors influencing revenue and expense recognition timing during this period.