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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- Common-Size Income Statement
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
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Balance-Sheet-Based Accruals Ratio
GE Aerospace, 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, cash equivalents and restricted cash | ||||||
| Less: Investment securities | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings | ||||||
| Less: Long-term borrowings | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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. Initially negative, the ratio demonstrates a substantial decline in 2023 before recovering and turning positive in 2025. This pattern warrants further investigation to understand the underlying drivers of these changes and their potential implications for earnings quality.
- Net Operating Assets
- Net operating assets decreased considerably from 2022 to 2023, declining from US$45,061 million to US$26,870 million. A further, albeit smaller, decrease was observed between 2023 and 2024, reaching US$24,236 million. However, a modest increase to US$27,000 million occurred in 2025, suggesting a potential stabilization or reversal of the prior downward trend.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals were negative throughout the period, indicating that cash flows from operations generally exceeded reported net income. The magnitude of these accruals increased substantially in 2023, reaching negative US$18,191 million, before decreasing to negative US$2,634 million in 2024. In 2025, accruals became positive, totaling US$2,764 million, representing a significant shift in the relationship between cash flows and reported earnings.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio began at -7.82% in 2022. A dramatic decrease was observed in 2023, with the ratio falling to -50.58%. This suggests a considerable divergence between reported earnings and underlying cash flows during that year. The ratio improved significantly in 2024, reaching -10.31%, and then turned positive in 2025, registering 10.79%. The movement into positive territory indicates that reported earnings were increasingly supported by accruals rather than cash flows in the final year of the period. The large swing in the ratio from negative to positive warrants scrutiny to determine if it reflects legitimate business changes or potential earnings management.
The combined trends suggest a period of significant operational and accounting adjustments. The substantial decrease in net operating assets coupled with the large negative accruals in 2023 likely contributed to the dramatic decline in the accruals ratio. The subsequent recovery in both net operating assets and the accruals ratio, culminating in positive accruals in 2025, suggests a potential shift in the company’s financial performance and reporting practices. Further investigation into the specific components of these accruals is recommended to assess the sustainability of this trend and the overall quality of reported earnings.
Cash-Flow-Statement-Based Accruals Ratio
GE Aerospace, cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to the Company | ||||||
| Less: Cash from operating activities | ||||||
| Less: Cash (used for) from investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
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.
The information presents a review of net operating assets and related accruals over a four-year period. A notable shift is observed in the cash-flow-statement-based accruals ratio, moving from negative values to positive ones during the analyzed timeframe.
- Net Operating Assets
- Net operating assets decreased significantly from 2022 to 2023, declining from US$45,061 million to US$26,870 million. This decline continued, albeit at a slower pace, to US$24,236 million in 2024. A modest increase to US$27,000 million is then recorded in 2025, suggesting a potential stabilization after the initial reduction.
- Cash-Flow-Statement-Based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals were negative in 2022 and 2023, at US$-7,464 million and US$-3,027 million respectively. This indicates that cash flows were greater than reported earnings during these periods. Accruals then turned positive in 2024 and 2025, reaching US$1,295 million and US$937 million. This suggests that reported earnings exceeded cash flows in these later years.
- Cash-Flow-Statement-Based Accruals Ratio
- The cash-flow-statement-based accruals ratio exhibited a substantial change. In 2022, the ratio was -15.92%, indicating a significant negative accrual component relative to net operating assets. This ratio improved to -8.42% in 2023, still negative but less pronounced. A positive shift occurred in 2024, with the ratio reaching 5.07%, and continued in 2025, settling at 3.66%. This progression suggests a decreasing reliance on cash flows to support reported earnings, and a growing reliance on accruals in the most recent periods.
The transition from negative to positive accruals, coupled with the change in the accruals ratio, warrants further investigation. While negative accruals can sometimes indicate conservative accounting, consistently negative values may raise concerns. The subsequent positive accruals, while not inherently negative, should be examined to ensure they are supported by underlying economic activity and do not signal potential earnings management.