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
Corning 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 | 28,500) | 29,499) | 30,154) | 30,775) | 28,898) | |
| Less: Cash and cash equivalents | 1,779) | 1,671) | 2,148) | 2,672) | 2,434) | |
| Operating assets | 26,721) | 27,828) | 28,006) | 28,103) | 26,464) | |
| Operating Liabilities | ||||||
| Total liabilities | 16,632) | 17,224) | 17,609) | 17,327) | 15,901) | |
| Less: Current portion of long-term debt and short-term borrowings | 320) | 224) | 55) | 156) | 11) | |
| Less: Long-term debt, excluding current portion | 7,206) | 6,687) | 6,989) | 7,816) | 7,729) | |
| Operating liabilities | 9,106) | 10,313) | 10,565) | 9,355) | 8,161) | |
| Net operating assets1 | 17,615) | 17,515) | 17,441) | 18,748) | 18,303) | |
| Balance-sheet-based aggregate accruals2 | 100) | 74) | (1,307) | 445) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | 0.57% | 0.42% | -7.22% | 2.40% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Apple Inc. | -9.04% | -2.12% | 36.09% | -11.31% | — | |
| Arista Networks Inc. | 17.14% | 106.22% | 24.14% | — | — | |
| Cisco Systems Inc. | -12.09% | 5.96% | 20.24% | -7.26% | — | |
| Dell Technologies Inc. | 12.16% | -89.81% | -10.71% | — | — | |
| Super Micro Computer Inc. | 3.74% | 58.35% | 8.42% | 20.97% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Technology Hardware & Equipment | -6.96% | -13.35% | 22.01% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | 8.98% | 18.09% | 19.16% | 200.00% | — | |
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
= 26,721 – 9,106 = 17,615
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 17,615 – 17,515 = 100
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 100 ÷ [(17,615 + 17,515) ÷ 2] = 0.57%
4 Click competitor name to see calculations.
The data presents an analysis of net operating assets alongside balance-sheet-based aggregate accruals and their corresponding ratio over a four-year period ending December 31, 2023.
- Net Operating Assets
- The net operating assets remained relatively stable throughout the observed period, with marginal fluctuations. The value slightly decreased from 18,748 million USD in 2020 to 17,441 million USD in 2021, followed by a minor increase to 17,515 million USD in 2022 and a further slight rise to 17,615 million USD in 2023. Overall, this suggests consistent investment in operational assets with minimal volatility.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals exhibited notable volatility. In 2020, the figure stood at 445 million USD, followed by a sharp reversal to a negative value of -1,307 million USD in 2021, indicating a significant reduction or reversal of accruals. In subsequent years, the accruals recovered to positive territory, with 74 million USD in 2022 and a slight increase to 100 million USD in 2023. This pattern indicates an abnormal accrual activity in 2021, followed by a stabilization in 2022 and 2023.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the behavior of aggregate accruals but expressed as a percentage of net operating assets. Starting at 2.4% in 2020, it plummeted sharply to -7.22% in 2021, reflecting the pronounced negative accruals. The ratio then recovered to modest positive levels of 0.42% in 2022 and slightly increased to 0.57% in 2023. This trend underscores the exceptional and unusual accrual activity in 2021, while the subsequent periods indicate normalization to typical accrual levels relative to operating assets.
Cash-Flow-Statement-Based Accruals Ratio
Corning 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 | ||
|---|---|---|---|---|---|---|
| Net income attributable to Corning Incorporated | 581) | 1,316) | 1,906) | 512) | 960) | |
| Less: Net cash provided by operating activities | 2,005) | 2,615) | 3,412) | 2,180) | 2,031) | |
| Less: Net cash used in investing activities | (1,000) | (1,355) | (1,419) | (1,310) | (1,891) | |
| Cash-flow-statement-based aggregate accruals | (424) | 56) | (87) | (358) | 820) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -2.41% | 0.32% | -0.48% | -1.93% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Apple Inc. | -14.62% | 0.00% | 4.86% | -20.46% | — | |
| Arista Networks Inc. | 36.37% | 52.90% | 147.50% | — | — | |
| Cisco Systems Inc. | -7.65% | -10.18% | 1.64% | -32.20% | — | |
| Dell Technologies Inc. | 11.23% | -20.97% | -17.42% | — | — | |
| Super Micro Computer Inc. | 0.89% | 56.84% | 5.08% | 19.76% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Technology Hardware & Equipment | -10.03% | -4.10% | -0.72% | -32.83% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | 1.46% | 2.91% | 8.62% | -15.54% | — | |
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 × -424 ÷ [(17,615 + 17,515) ÷ 2] = -2.41%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited a slight decreasing trend from 2020 to 2021, declining from 18,748 million US dollars to 17,441 million US dollars. From 2021 through 2023, the figures stabilized, showing modest fluctuations but effectively remaining around the 17,500 million US dollar level. This indicates a period of relative asset base stability after the initial reduction.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals showed variability over the period. In 2020, accruals were negative at -358 million US dollars, then reduced their negativity significantly in 2021 to -87 million US dollars. Notably, in 2022, the value turned positive with 56 million US dollars, indicating a possible shift in accrual accounting behavior or cash flow timing. However, the value reverted to a notably negative figure of -424 million US dollars in 2023, suggesting increased non-cash adjustments or timing differences impacting cash flow negatively.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the pattern of aggregate accruals. It moved from a negative -1.93% in 2020, reached a low negative of -0.48% in 2021, and crossed into positive territory at 0.32% in 2022. The ratio then sharply declined to -2.41% in 2023, the lowest point in the observed period. This sharp decline could imply greater divergence between net income and cash flows for the latest period, pointing to potential concerns regarding earnings quality or timing differences in cash flows.
- Overall Insights
- Across the observed periods, net operating assets remained relatively stable after an initial decline. The fluctuations in aggregate accruals and the accruals ratio suggest variability in earnings quality or cash timing effects, with particular attention warranted for the marked negative change in 2023. The shift to positive accruals in 2022 followed by a considerable negative swing in 2023 could indicate irregularities or non-recurring factors influencing accrual-based measures, calling for further examination into the components driving these changes.