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
Dollar General Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Feb 2, 2024 | Feb 3, 2023 | Jan 28, 2022 | Jan 29, 2021 | Jan 31, 2020 | Feb 1, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 30,795,591) | 29,083,367) | 26,327,371) | 25,862,624) | 22,825,084) | 13,204,038) | |
| Less: Cash and cash equivalents | 537,283) | 381,576) | 344,829) | 1,376,577) | 240,320) | 235,487) | |
| Operating assets | 30,258,308) | 28,701,791) | 25,982,542) | 24,486,047) | 22,584,764) | 12,968,551) | |
| Operating Liabilities | |||||||
| Total liabilities | 24,046,472) | 23,541,595) | 20,065,385) | 19,201,386) | 16,122,584) | 6,786,645) | |
| Less: Current portion of long-term obligations | 768,645) | —) | —) | —) | 555) | 1,950) | |
| Less: Long-term obligations, excluding current portion | 6,231,539) | 7,009,399) | 4,172,068) | 4,130,975) | 2,911,438) | 2,862,740) | |
| Operating liabilities | 17,046,288) | 16,532,196) | 15,893,317) | 15,070,411) | 13,210,591) | 3,921,955) | |
| Net operating assets1 | 13,212,020) | 12,169,595) | 10,089,225) | 9,415,636) | 9,374,173) | 9,046,596) | |
| Balance-sheet-based aggregate accruals2 | 1,042,425) | 2,080,370) | 673,589) | 41,463) | 327,577) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 8.21% | 18.69% | 6.91% | 0.44% | 3.56% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Costco Wholesale Corp. | 11.49% | -0.39% | 20.71% | 5.32% | 2.31% | — | |
| Target Corp. | 2.06% | 19.69% | 10.33% | -10.90% | — | — | |
| Walmart Inc. | 6.15% | 0.02% | 1.09% | -6.44% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 6.12% | 2.78% | 4.30% | -5.94% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 1.15% | 2.58% | 7.61% | -0.13% | 200.00% | — | |
Based on: 10-K (reporting date: 2024-02-02), 10-K (reporting date: 2023-02-03), 10-K (reporting date: 2022-01-28), 10-K (reporting date: 2021-01-29), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-02-01).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 30,258,308 – 17,046,288 = 13,212,020
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 13,212,020 – 12,169,595 = 1,042,425
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,042,425 ÷ [(13,212,020 + 12,169,595) ÷ 2] = 8.21%
4 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets exhibited a consistent upward trend over the five-year period. Starting from approximately 9.37 billion US dollars in early 2020, the figure increased steadily each year, reaching over 13.2 billion US dollars by early 2024. This growth reflects an expansion in the operating asset base, indicating increased investment or accumulation of operating resources by the company.
- Balance-sheet-based Aggregate Accruals
- Aggregate accruals showed considerable volatility throughout the period. The value decreased sharply from about 327.6 million US dollars in early 2020 to 41.5 million in early 2021, followed by a substantial increase to 673.6 million in early 2022. The upward trend continued with a peak at approximately 2.08 billion in early 2023 before declining to 1.04 billion in early 2024. These fluctuations suggest varying levels of accruals impacting earnings quality, potentially reflecting changes in estimates or recognition policies.
- Balance-sheet-based Accruals Ratio
- The accruals ratio mirrored the behavior observed in aggregate accruals, showing significant variation over time. Initially, the ratio was moderate at 3.56% in early 2020, dropping sharply to 0.44% in early 2021, then rising steeply to 6.91% in early 2022. A substantial increase was noted in early 2023 with the ratio peaking at 18.69%, before falling back to 8.21% in early 2024. The peak in early 2023 indicates a period of notably higher accruals relative to net operating assets, which may imply reduced earnings quality or increased estimation uncertainty during that year.
Cash-Flow-Statement-Based Accruals Ratio
Dollar General Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Feb 2, 2024 | Feb 3, 2023 | Jan 28, 2022 | Jan 29, 2021 | Jan 31, 2020 | Feb 1, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | 1,661,274) | 2,415,989) | 2,399,232) | 2,655,050) | 1,712,555) | 1,589,472) | |
| Less: Net cash provided by operating activities | 2,391,798) | 1,984,555) | 2,865,811) | 3,876,159) | 2,237,998) | 2,143,550) | |
| Less: Net cash used in investing activities | (1,694,023) | (1,555,346) | (1,065,557) | (1,024,910) | (782,485) | (731,603) | |
| Cash-flow-statement-based aggregate accruals | 963,499) | 1,986,780) | 598,978) | (196,199) | 257,042) | 177,525) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 7.59% | 17.85% | 6.14% | -2.09% | 2.79% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Costco Wholesale Corp. | 2.33% | 1.10% | 14.69% | -2.96% | -7.15% | — | |
| Target Corp. | 1.09% | 18.64% | 7.52% | -18.12% | — | — | |
| Walmart Inc. | 0.87% | 0.47% | -3.77% | -10.19% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 1.06% | 3.13% | -0.42% | -10.54% | -3.84% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | -0.17% | 2.27% | 4.81% | -4.89% | -2.34% | — | |
Based on: 10-K (reporting date: 2024-02-02), 10-K (reporting date: 2023-02-03), 10-K (reporting date: 2022-01-28), 10-K (reporting date: 2021-01-29), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-02-01).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 963,499 ÷ [(13,212,020 + 12,169,595) ÷ 2] = 7.59%
2 Click competitor name to see calculations.
The data presents a financial measure related to net operating assets and accruals over a five-year period. Observing the net operating assets, there is a consistent upward trend throughout the years. Starting from approximately $9.37 billion in early 2020, the net operating assets gradually increase each year, reaching over $13.2 billion by early 2024. This demonstrates sustained growth in the operating asset base of the company.
Regarding the cash-flow-statement-based aggregate accruals, the values exhibit more variability. In early 2020, accruals stood positive at around $257 million, then decreased sharply to a negative value of approximately $196 million in early 2021. Subsequently, the accruals rebounded with a significant rise over the next years, peaking at nearly $1.99 billion in early 2023 before declining to about $963 million by early 2024. This pattern indicates fluctuating accrual activity, possibly reflecting changes in operational working capital or accounting adjustments affecting cash flow classification.
The cash-flow-statement-based accruals ratio, which relates the aggregate accruals to the net operating assets, further illustrates these fluctuations on a percentage basis. Initially, the ratio was positive at 2.79% in early 2020, turned negative to -2.09% in early 2021, then showed a considerable increase to 6.14% in early 2022. The ratio peaked at 17.85% in early 2023, indicating a substantial proportion of accruals relative to operating assets, before falling back to 7.59% in early 2024. These movements suggest notable volatility in accrual quality and financial statement adjustments over the analyzed period.
Overall, the net operating assets reinforce a trend of asset growth, while the accrual figures and ratios reflect variability in the timing and recognition of earnings components. The increase in accrual ratios particularly in 2023 signals a potential area for closer scrutiny concerning earnings quality and the sustainability of reported cash flows during that period.