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
Fidelity National Information Services Inc., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | 63,278) | 82,931) | 83,842) | 83,806) | 23,770) | |
| Less: Cash and cash equivalents | 2,188) | 2,010) | 1,959) | 1,152) | 703) | |
| Operating assets | 61,090) | 80,921) | 81,883) | 82,654) | 23,067) | |
| Operating Liabilities | ||||||
| Total liabilities | 35,872) | 35,399) | 34,355) | 34,350) | 13,548) | |
| Less: Short-term borrowings | 3,797) | 3,911) | 2,750) | 2,823) | 267) | |
| Less: Current portion of long-term debt | 2,133) | 1,617) | 1,314) | 140) | 48) | |
| Less: Long-term debt, excluding current portion | 14,207) | 14,825) | 15,951) | 17,229) | 8,670) | |
| Operating liabilities | 15,735) | 15,046) | 14,340) | 14,158) | 4,563) | |
| Net operating assets1 | 45,355) | 65,875) | 67,543) | 68,496) | 18,504) | |
| Balance-sheet-based aggregate accruals2 | (20,520) | (1,668) | (953) | 49,992) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -36.90% | -2.50% | -1.40% | 114.92% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Accenture PLC | 21.70% | 27.93% | — | — | — | |
| Adobe Inc. | -8.24% | 14.14% | — | — | — | |
| AppLovin Corp. | 36.28% | — | — | — | — | |
| Cadence Design Systems Inc. | 26.65% | — | — | — | — | |
| Datadog Inc. | 17.56% | — | — | — | — | |
| International Business Machines Corp. | 1.55% | — | — | — | — | |
| Intuit Inc. | 85.68% | — | — | — | — | |
| Microsoft Corp. | 42.27% | — | — | — | — | |
| Oracle Corp. | 9.90% | — | — | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | |
| Palo Alto Networks Inc. | -124.73% | — | — | — | — | |
| Salesforce Inc. | 57.74% | — | — | — | — | |
| ServiceNow Inc. | 12.89% | — | — | — | — | |
| Synopsys Inc. | 5.01% | 0.36% | — | — | — | |
| Workday Inc. | 55.93% | — | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Software & Services | 29.53% | 200.00% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | 19.09% | 200.00% | — | — | — | |
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= 61,090 – 15,735 = 45,355
2 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2022 – Net operating assets2021
= 45,355 – 65,875 = -20,520
3 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -20,520 ÷ [(45,355 + 65,875) ÷ 2] = -36.90%
4 Click competitor name to see calculations.
The financial data indicates a significant shift in the balance sheet structure and accrual dynamics between 2019 and 2022. There is a pronounced transition from high positive accruals to increasingly negative values, coinciding with a substantial contraction in net operating assets during the final period of the analysis.
- Net Operating Assets
- A gradual decline in net operating assets was observed from December 31, 2019, at 68,496 million US$, to 65,875 million US$ by December 31, 2021. However, a sharp contraction occurred in 2022, with assets falling to 45,355 million US$, representing a significant reduction in the operational asset base.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals underwent a dramatic reversal. In 2019, accruals were highly positive at 49,992 million US$. This figure shifted to negative territory in 2020 (-953 million US$) and continued to decline through 2021 (-1,668 million US$), culminating in a steep drop to -20,520 million US$ by the end of 2022.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrors the trend of the aggregate accruals, showing a collapse in the ratio over the four-year period. The ratio started at an exceptionally high 114.92% in 2019, indicating that a large portion of the asset base was comprised of accruals. The ratio transitioned to -1.40% in 2020 and -2.50% in 2021, before falling sharply to -36.90% in 2022.
The trajectory of these metrics suggests a fundamental change in the quality of financial reporting or the corporate structure. The movement from a high positive ratio to a deeply negative ratio indicates that cash flows have significantly diverged from reported accounting earnings, likely driven by the substantial reduction in net operating assets observed in 2022.
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Cash-Flow-Statement-Based Accruals Ratio
Fidelity National Information Services Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Net earnings (loss) attributable to FIS common stockholders | (16,720) | 417) | 158) | 298) | 846) | |
| Less: Net cash provided by operating activities | 3,939) | 4,810) | 4,442) | 2,410) | 1,993) | |
| Less: Net cash used in investing activities | (373) | (1,771) | (914) | (7,501) | (668) | |
| Cash-flow-statement-based aggregate accruals | (20,286) | (2,622) | (3,370) | 5,389) | (479) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -36.48% | -3.93% | -4.95% | 12.39% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Accenture PLC | 11.87% | 11.80% | — | — | — | |
| Adobe Inc. | -19.93% | 9.21% | — | — | — | |
| AppLovin Corp. | 22.07% | — | — | — | — | |
| Cadence Design Systems Inc. | 15.03% | — | — | — | — | |
| Datadog Inc. | -34.44% | — | — | — | — | |
| International Business Machines Corp. | -7.22% | — | — | — | — | |
| Intuit Inc. | 25.60% | — | — | — | — | |
| Microsoft Corp. | 13.42% | — | — | — | — | |
| Oracle Corp. | -30.58% | — | — | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | |
| Palo Alto Networks Inc. | -196.64% | — | — | — | — | |
| Salesforce Inc. | 21.96% | — | — | — | — | |
| ServiceNow Inc. | 8.80% | — | — | — | — | |
| Synopsys Inc. | -4.64% | -4.88% | — | — | — | |
| Workday Inc. | -0.65% | — | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Software & Services | 2.29% | 21.87% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | 3.25% | 15.65% | — | — | — | |
Based on: 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), 10-K (reporting date: 2018-12-31).
1 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -20,286 ÷ [(45,355 + 65,875) ÷ 2] = -36.48%
2 Click competitor name to see calculations.
An analysis of the cash-flow-statement-based accruals from 2019 to 2022 reveals a significant shift in the relationship between accrual-based earnings and cash flow, characterized by a transition from positive accruals to deeply negative values. This trend culminates in a substantial divergence during the 2022 fiscal year, coinciding with a marked reduction in net operating assets.
- Net Operating Assets Trend
- Net operating assets remained relatively stable between 2019 and 2021, decreasing marginally from 68,496 million USD to 65,875 million USD. However, a sharp contraction occurred in 2022, with assets falling to 45,355 million USD, representing a decrease of approximately 31% relative to the previous year.
- Aggregate Accruals Dynamics
- Cash-flow-statement-based aggregate accruals shifted from a positive position of 5,389 million USD in 2019 to negative territory in 2020 and 2021, recording -3,370 million USD and -2,622 million USD, respectively. In 2022, a precipitous decline was observed, with aggregate accruals reaching -20,286 million USD, indicating that cash flows significantly exceeded accrual-based earnings during this period.
- Accruals Ratio Interpretation
- The cash-flow-statement-based accruals ratio mirrors the movement of aggregate accruals, starting at 12.39% in 2019 before turning negative. The ratio remained relatively stable but negative through 2020 (-4.95%) and 2021 (-3.93%). The 2022 fiscal year saw a dramatic escalation to -36.48%. This steep negative trajectory suggests a period of high reporting conservatism or the impact of substantial non-cash charges that reduced accrual earnings while cash flow remained robust or increased.
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