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.
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ConocoPhillips pages available for free this week:
- Statement of Comprehensive Income
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Return on Assets (ROA) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
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Balance-Sheet-Based Accruals Ratio
ConocoPhillips, balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Less: Short-term investments | ||||||
| Less: Investment in Cenovus Energy | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term debt | ||||||
| Less: Long-term debt | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| Exxon Mobil Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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.
The balance-sheet-based accruals ratio exhibits significant fluctuations over the observed period. Net operating assets demonstrate a consistent upward trend initially, followed by a slight decrease in the final year. Aggregate accruals, in contrast, show a volatile pattern, shifting from negative to positive values and back again.
- Net Operating Assets
- Net operating assets increased from US$55,403 million in 2022 to US$61,610 million in 2023, representing a growth of approximately 11.17%. This growth continued into 2024, reaching US$83,006 million, a substantial increase of 34.92% from the prior year. However, a slight decrease was observed in 2025, with net operating assets falling to US$80,950 million, a decline of approximately 2.47%.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were negative in 2022, registering at US$-3,346 million. A substantial positive shift occurred in 2023, with accruals reaching US$6,207 million. This positive trend accelerated in 2024, with accruals increasing to US$21,396 million. However, accruals turned negative again in 2025, amounting to US$-2,056 million.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio mirrored the fluctuations in aggregate accruals. In 2022, the ratio was -5.86%. It increased significantly to 10.61% in 2023, and further to 29.59% in 2024. A substantial reversal occurred in 2025, with the ratio declining to -2.51%. The large positive value in 2024, followed by a negative value in 2025, suggests a potential shift in the timing of revenue and expense recognition or changes in working capital management. The initial negative ratio in 2022 could indicate conservative accounting practices or a realization of prior accruals.
The volatility in the accruals ratio warrants further investigation. The significant increase in 2024, followed by a decrease in 2025, could be indicative of earnings management or changes in the underlying business operations. A deeper analysis, including comparison with industry peers and examination of the components of accruals, is recommended.
Cash-Flow-Statement-Based Accruals Ratio
ConocoPhillips, cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net cash provided by 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 | ||||||
| Chevron Corp. | ||||||
| Exxon Mobil Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 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 increased over the observed period, beginning at US$55.403 billion in 2022 and reaching US$83.006 billion in 2024 before decreasing slightly to US$80.950 billion in 2025. The cash-flow-statement-based aggregate accruals exhibited significant fluctuations, transitioning from a negative value in 2022 to a positive value in 2023, then declining again in subsequent years. This volatility is reflected in the cash-flow-statement-based accruals ratio, which demonstrates considerable year-over-year changes.
- Cash-Flow-Statement-Based Aggregate Accruals
- The cash-flow-statement-based aggregate accruals were negative in 2022, at -US$893 million, indicating that cash flows from operations were greater than reported net income. A substantial increase was observed in 2023, with accruals reaching US$2.992 billion. This suggests a significant difference between reported earnings and actual cash generated from operations. Accruals then decreased considerably to US$271 million in 2024, before becoming negative again in 2025, reaching -US$2.972 billion. The shift to negative accruals in 2025 mirrors the 2022 situation, where cash flows exceeded reported income.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio was -1.56% in 2022, consistent with the negative accruals value. In 2023, the ratio rose sharply to 5.11%, reflecting the substantial increase in accruals. The ratio decreased to 0.37% in 2024, indicating a smaller accruals component relative to net operating assets. Finally, the ratio turned negative in 2025, reaching -3.63%, which aligns with the negative accruals and suggests a larger divergence between cash flows and reported earnings in that year. The fluctuations in this ratio warrant further investigation to understand the underlying drivers of accrual patterns.
The observed patterns suggest a dynamic relationship between reported earnings and cash flows. The significant changes in both accruals and the accruals ratio across the period indicate potential areas for further scrutiny regarding the quality of earnings and the company’s accounting practices. The return to negative accruals and a negative accruals ratio in 2025 is a notable development that should be examined in the context of the company’s overall financial performance and industry trends.