FedEx Corp. (NYSE:FDX)

The analysis of the financial reporting quality measures reveals several noteworthy trends over the five-year period under review.

Net Operating Assets

There is a consistent upward growth in net operating assets from 35,417 million US dollars in 2020 to 41,284 million US dollars in 2024. This represents a steady increase over the years, indicating expanding operational asset base and potentially growing business scale.

Balance-Sheet-Based Aggregate Accruals

The aggregate accruals show significant volatility. Starting at 2,398 million US dollars in 2020, they increased slightly to 2,543 million in 2021 but then dropped sharply to 346 million in 2022. Subsequently, accruals rose again to 1,505 million in 2023 and slightly decreased to 1,473 million in 2024. This fluctuation suggests varying degrees of adjustments in accrual accounting, which may reflect changing accounting estimates or operational conditions.

Balance-Sheet-Based Accruals Ratio

The accruals ratio, expressed as a percentage of net operating assets, follows a pattern similar to that of aggregate accruals but highlights relative magnitude. It starts at 7.01% in 2020, remains slightly lower in 2021 at 6.93%, then plunges to 0.91% in 2022. Following this, the ratio rises to 3.85% in 2023 and declines moderately to 3.63% in 2024. The notably lower ratio in 2022 indicates that accruals were minimal relative to net operating assets that year, which could suggest improved earnings quality or reduced managerial discretion in accruals during that period.

Overall, while the asset base consistently grows, the accrual measures exhibit considerable year-to-year variability. This volatility in accruals ratios could imply changes in earnings quality or shifts in accounting policies and estimates, meriting further examination into the underlying causes for these fluctuations.

The analysis of the annual financial reporting quality measure data reveals several key trends and patterns over the five-year period ending May 31, 2024.

Net Operating Assets:

The net operating assets have exhibited a steady upward trend throughout the period. Starting at US$35,417 million in 2020, the figure increased consistently each year, reaching US$41,284 million by 2024. This indicates a progressive expansion in the company's operating asset base, suggesting continued investment or growth in operational capacity.

Cash-flow-statement-based Aggregate Accruals:

The aggregate accruals have shown a declining trend from the initial value of US$2,035 million in 2020 to US$810 million in 2022. However, there was a subsequent increase to US$1,298 million in 2023, followed by a slight decrease to US$1,219 million in 2024. This fluctuation suggests variability in accruals management or timing differences between cash flows and reported earnings, with some recovery in accruals after the decline seen up to 2022.

Cash-flow-statement-based Accruals Ratio (%):

The accruals ratio follows a pattern similar to the aggregate accruals. It started at 5.95% in 2020 and declined significantly to 2.12% by 2022, reflecting a lower proportion of accruals relative to net operating assets during these years. Thereafter, the ratio increased to 3.32% in 2023 before slightly decreasing again to 3.01% in 2024. Despite this rebound, the ratio remains notably lower than the initial figure, implying improved earnings quality with less reliance on accruals in recent periods compared to 2020.

Overall, the data suggest that while net operating assets have steadily grown, the accruals and accruals ratio have decreased markedly from 2020 to 2022, indicating potentially higher financial reporting quality during those years. The partial reversal in 2023 and 2024 warrants attention, as it may reflect changes in earnings management or operational conditions affecting accrual levels.