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
Hilton Worldwide Holdings 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 | 15,401) | 15,512) | 15,441) | 16,755) | 14,957) | |
| Less: Cash and cash equivalents | 800) | 1,209) | 1,427) | 3,218) | 538) | |
| Less: Restricted cash and cash equivalents | 75) | 77) | 85) | 45) | 92) | |
| Operating assets | 14,526) | 14,226) | 13,929) | 13,492) | 14,327) | |
| Operating Liabilities | ||||||
| Total liabilities | 17,748) | 16,610) | 16,260) | 18,241) | 15,429) | |
| Less: Current maturities of long-term debt | 39) | 39) | 54) | 56) | 37) | |
| Less: Long-term debt, excluding current maturities | 9,157) | 8,708) | 8,712) | 10,431) | 7,956) | |
| Operating liabilities | 8,552) | 7,863) | 7,494) | 7,754) | 7,436) | |
| Net operating assets1 | 5,974) | 6,363) | 6,435) | 5,738) | 6,891) | |
| Balance-sheet-based aggregate accruals2 | (389) | (72) | 697) | (1,153) | —) | |
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | -6.31% | -1.13% | 11.45% | -18.26% | — | |
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | -468.72% | -68.38% | 2.00% | — | — | |
| Chipotle Mexican Grill Inc. | 18.41% | 18.43% | 13.32% | — | — | |
| DoorDash, Inc. | -21.00% | 112.44% | 126.46% | — | — | |
| McDonald’s Corp. | 9.94% | 8.46% | 0.56% | — | — | |
| Starbucks Corp. | 13.66% | 10.72% | -25.79% | 45.93% | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 3.11% | 4.58% | 1.21% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 12.01% | 13.04% | 12.78% | 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
= 14,526 – 8,552 = 5,974
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= 5,974 – 6,363 = -389
3 2023 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -389 ÷ [(5,974 + 6,363) ÷ 2] = -6.31%
4 Click competitor name to see calculations.
The data reflects several notable trends in the financial reporting quality of the company over the four-year period.
- Net Operating Assets
- Net operating assets remained relatively stable from 2020 to 2023. There was an increase from 5738 million USD in 2020 to a peak of 6435 million USD in 2021, followed by a slight decrease in 2022 and a further decline to 5974 million USD in 2023. This indicates some volatility but overall a moderate decrease after the 2021 peak.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals showed significant fluctuations over the period. Starting with a negative value of -1153 million USD in 2020, it shifted sharply to a positive 697 million USD in 2021, then declined again to fluctuate between small negative values of -72 million USD in 2022 and -389 million USD in 2023. This pattern suggests variability in accrual accounting practices or changes in earnings management strategies across these years.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio correspondingly exhibited a shift from a negative -18.26% in 2020 to a positive 11.45% in 2021, then trended downward to -1.13% in 2022 and further to -6.31% in 2023. This trend reflects the changes seen in aggregate accruals and suggests a move from more conservative earnings recognition in 2020, through a possible period of less conservative or more aggressive earnings recognition in 2021, followed by a return to a more conservative stance in the subsequent years.
Overall, the data indicates that while net operating assets experienced modest changes, the accruals measures reveal considerable variation that could impact the quality and reliability of financial reporting. The fluctuation in accrual ratios points to changing accounting or operational conditions influencing the recognition of assets and liabilities over time.
Cash-Flow-Statement-Based Accruals Ratio
Hilton Worldwide Holdings 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 (loss) attributable to Hilton stockholders | 1,141) | 1,255) | 410) | (715) | 881) | |
| Less: Net cash provided by operating activities | 1,946) | 1,681) | 109) | 708) | 1,384) | |
| Less: Net cash used in investing activities | (305) | (123) | (57) | (107) | (123) | |
| Cash-flow-statement-based aggregate accruals | (500) | (303) | 358) | (1,316) | (380) | |
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | -8.11% | -4.74% | 5.88% | -20.84% | — | |
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Airbnb Inc. | — | — | — | — | — | |
| Booking Holdings Inc. | -519.27% | -67.03% | -11.13% | — | — | |
| Chipotle Mexican Grill Inc. | 24.18% | 30.18% | -9.35% | — | — | |
| DoorDash, Inc. | -64.28% | -68.90% | 159.10% | — | — | |
| McDonald’s Corp. | 6.77% | 5.35% | 2.17% | — | — | |
| Starbucks Corp. | 12.06% | 36.35% | -47.73% | 36.84% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | -4.40% | -8.29% | -5.57% | -34.42% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 4.25% | 1.57% | 11.50% | 6.55% | — | |
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 × -500 ÷ [(5,974 + 6,363) ÷ 2] = -8.11%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets show a general upward trend from 2020 to 2021, increasing from 5738 million US dollars to 6435 million US dollars. However, in the following years, there is a slight decline to 6363 million US dollars in 2022 and further to 5974 million US dollars in 2023, indicating some contraction in the company's operational asset base after the peak in 2021.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals metric exhibits considerable volatility. It starts with a negative value of -1316 million US dollars in 2020, shifts to a positive 358 million US dollars in 2021, and swings back into negative territory with -303 million US dollars in 2022 and further negativity at -500 million US dollars in 2023. This fluctuation suggests irregularities or variability in the timing of revenue and expense recognition within the operating cash flows over the periods.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the behavior of aggregate accruals, starting at a negative -20.84% in 2020, moving to a positive 5.88% in 2021, followed by negative values of -4.74% in 2022 and -8.11% in 2023. The negative ratios indicate that cash flows exceed earnings in those years, potentially signaling conservative earnings or cash flow timing differences. The intermittent positive ratio in 2021 suggests a less conservative period or possibly earnings exceeding cash flows.