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
Chipotle Mexican Grill Inc., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 9,204,374) | 8,044,362) | 6,927,504) | 6,652,958) | 5,982,896) | |
| Less: Cash and cash equivalents | 748,537) | 560,609) | 384,000) | 815,374) | 607,987) | |
| Less: Current investments | 674,378) | 734,838) | 515,136) | 260,945) | 343,616) | |
| Operating assets | 7,781,459) | 6,748,915) | 6,028,368) | 5,576,639) | 5,031,293) | |
| Operating Liabilities | ||||||
| Total liabilities | 5,548,828) | 4,982,155) | 4,559,481) | 4,355,584) | 3,962,761) | |
| Operating liabilities | 5,548,828) | 4,982,155) | 4,559,481) | 4,355,584) | 3,962,761) | |
| Net operating assets1 | 2,232,631) | 1,766,760) | 1,468,887) | 1,221,055) | 1,068,532) | |
| Balance-sheet-based aggregate accruals2 | 465,871) | 297,873) | 247,832) | 152,523) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 23.30% | 18.41% | 18.43% | 13.32% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | — | -468.72% | -68.38% | 2.00% | — | |
| McDonald’s Corp. | 11.01% | 9.94% | 8.46% | 0.56% | — | |
| Starbucks Corp. | 28.92% | 13.66% | 10.72% | -25.79% | 45.93% | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 7.14% | 5.15% | -1.96% | -0.80% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 12.16% | 12.17% | 12.67% | 12.65% | — | |
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
= 7,781,459 – 5,548,828 = 2,232,631
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 2,232,631 – 1,766,760 = 465,871
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 465,871 ÷ [(2,232,631 + 1,766,760) ÷ 2] = 23.30%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets showed a consistent upward trend over the four-year period. Starting at approximately 1.22 billion US dollars in 2021, this figure increased to about 1.47 billion in 2022, then to roughly 1.77 billion in 2023, and reached approximately 2.23 billion by the end of 2024. This growth indicates an expanding operational base, suggesting increased investment in operational resources or growth in operational scale.
- Balance-sheet-based Aggregate Accruals
- This measure of accruals also exhibited a steady increase throughout the period. From 152.5 million US dollars in 2021, the accruals rose to 247.8 million in 2022, then to 297.9 million in 2023, and significantly increased to 465.9 million in 2024. The sharp rise in 2024 is particularly noteworthy and signals a growing level of adjustments related to revenues and expenses that are not reflected in cash flows.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, which represents the balance-sheet-based aggregate accruals as a percentage of net operating assets, also increased over time. It was 13.32% in 2021, rose to 18.43% in 2022, remained relatively steady at 18.41% in 2023, and then increased further to 23.3% in 2024. The rising ratio suggests an increasing proportion of accruals relative to net operating assets, indicating a potential increase in earnings management or less conservative financial reporting.
Cash-Flow-Statement-Based Accruals Ratio
Chipotle Mexican Grill Inc., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income | 1,534,110) | 1,228,737) | 899,101) | 652,984) | 355,766) | |
| Less: Net cash provided by operating activities | 2,105,076) | 1,783,477) | 1,323,179) | 1,282,081) | 663,847) | |
| Less: Net cash used in investing activities | (837,526) | (946,009) | (830,032) | (522,042) | (432,717) | |
| Cash-flow-statement-based aggregate accruals | 266,560) | 391,269) | 405,954) | (107,055) | 124,636) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | 13.33% | 24.18% | 30.18% | -9.35% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | — | -519.27% | -67.03% | -11.13% | — | |
| McDonald’s Corp. | 12.31% | 6.77% | 5.35% | 2.17% | — | |
| Starbucks Corp. | 9.10% | 12.06% | 36.35% | -47.73% | 36.84% | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 2.51% | 0.66% | -4.61% | -8.21% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 9.69% | 4.57% | 1.83% | 11.33% | — | |
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 × 266,560 ÷ [(2,232,631 + 1,766,760) ÷ 2] = 13.33%
2 Click competitor name to see calculations.
- Net operating assets
- There is a consistent upward trend in net operating assets over the four-year period. The value increased from approximately 1.22 billion USD in 2021 to about 2.23 billion USD in 2024, indicating a significant expansion of the company's operating asset base.
- Cash-flow-statement-based aggregate accruals
- The aggregate accruals demonstrate notable fluctuations. In 2021, a negative figure of around -107 million USD is observed, shifting sharply to positive values thereafter. The accruals peaked at approximately 406 million USD in 2022, followed by a gradual decline in 2023 and 2024 to about 391 million USD and 267 million USD respectively. This suggests volatility in accruals with a possible normalization trend in the latter years.
- Cash-flow-statement-based accruals ratio
- The accruals ratio mirrors the aggregate accruals' dynamics. It starts at -9.35% in 2021, reflecting a negative accrual period, then rises sharply to 30.18% in 2022. Subsequently, the ratio diminishes to 24.18% in 2023 and further to 13.33% in 2024. This indicates a decrease in the proportion of accruals relative to cash flows after the peak in 2022, suggesting improving accrual quality or changes in cash flow dynamics.