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% | — | — | — | |
| Chipotle Mexican Grill Inc. | 18.41% | 18.43% | — | — | — | |
| DoorDash, Inc. | -21.00% | 112.44% | — | — | — | |
| McDonald’s Corp. | 9.94% | 8.46% | — | — | — | |
| Starbucks Corp. | 13.66% | 10.72% | -25.79% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Consumer Services | 3.11% | 4.58% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 12.01% | 13.04% | 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.
Analysis of financial reporting quality indicates a period of volatility in accruals relative to net operating assets from 2020 through 2023. The fluctuations in the accruals ratio suggest shifting relationships between reported accounting earnings and actual cash flow movements over this four-year period.
- Net Operating Assets Trend
- Net operating assets grew from 5,738 million USD in 2020 to a peak of 6,435 million USD in 2021. This growth was followed by a steady decline, reaching 6,363 million USD in 2022 and further decreasing to 5,974 million USD by December 31, 2023.
- Aggregate Accruals Volatility
- Balance-sheet-based aggregate accruals demonstrated significant variance. A substantial negative value of -1,153 million USD in 2020 shifted to a positive 697 million USD in 2021. The metric then reverted to negative figures, recording -72 million USD in 2022 and -389 million USD in 2023.
- Accruals Ratio Analysis
- The accruals ratio mirrored the movement of aggregate accruals, starting at -18.26% in 2020 and rising to 11.45% in 2021. In the subsequent two years, the ratio fell to -1.13% and -6.31%, respectively. The recurrence of negative ratios in three of the four analyzed years indicates that cash flows generally exceeded accrual-based earnings for the majority of the period, a pattern often associated with conservative accounting or high non-cash charges.
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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% | — | — | — | |
| Chipotle Mexican Grill Inc. | 24.18% | 30.18% | — | — | — | |
| DoorDash, Inc. | -64.28% | -68.90% | — | — | — | |
| McDonald’s Corp. | 6.77% | 5.35% | — | — | — | |
| Starbucks Corp. | 12.06% | 36.35% | -47.73% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Consumer Services | -4.40% | -8.29% | -11.08% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Consumer Discretionary | 4.25% | 1.57% | 21.63% | — | — | |
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.
The analysis of cash-flow-statement-based accruals from 2020 to 2023 reveals a period of significant volatility in reporting quality metrics. While net operating assets showed an initial increase before trending downward, the aggregate accruals and the resulting accruals ratio fluctuated, indicating a varying relationship between reported accounting earnings and actual cash flows.
- Net Operating Assets Trend
- Net operating assets experienced an increase from US$ 5,738 million in 2020 to a peak of US$ 6,435 million in 2021. Following this peak, a gradual contraction occurred, with assets decreasing to US$ 6,363 million in 2022 and further to US$ 5,974 million by the end of 2023.
- Aggregate Accruals Volatility
- Cash-flow-statement-based aggregate accruals exhibited substantial swings over the four-year period. A significant negative value of US$ -1,316 million was recorded in 2020, which shifted to a positive US$ 358 million in 2021. The metric subsequently returned to negative territory, recording US$ -303 million in 2022 and US$ -500 million in 2023.
- Accruals Ratio Analysis
- The accruals ratio mirrored the volatility observed in aggregate accruals. A sharp negative ratio of -20.84% in 2020 indicates a period where cash flows significantly exceeded accrual-based earnings. This shifted to a positive 5.88% in 2021, suggesting that accruals outperformed cash flows during that year. In 2022 and 2023, the ratio returned to negative values of -4.74% and -8.11%, respectively, suggesting a recurring pattern where cash flows were higher than reported accrual earnings toward the end of the analyzed period.
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