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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Balance-Sheet-Based Accruals Ratio
Nike Inc., balance sheet computation of aggregate accruals
US$ in millions
| May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | May 31, 2020 | May 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | |||||||
| Less: Cash and equivalents | |||||||
| Less: Short-term investments | |||||||
| Operating assets | |||||||
| Operating Liabilities | |||||||
| Total liabilities | |||||||
| Less: Current portion of long-term debt | |||||||
| Less: Notes payable | |||||||
| Less: Long-term debt, excluding current portion | |||||||
| Operating liabilities | |||||||
| Net operating assets1 | |||||||
| Balance-sheet-based aggregate accruals2 | |||||||
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | |||||||
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| lululemon athletica inc. | |||||||
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Durables & Apparel | |||||||
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | |||||||
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= – =
3 2024 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.
- Net Operating Assets
- The net operating assets show a fluctuating trend over the five-year period. Beginning at 8,925 million USD in 2020, a slight decline occurred in 2021 to 8,706 million USD. Subsequently, there was a notable increase in 2022 and 2023, reaching a peak of 12,262 million USD, followed by a slight decrease to 11,757 million USD in 2024. This pattern indicates an overall growth in net operating assets with some volatility, particularly between 2021 and 2022.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals exhibit substantial variability across the years. Starting at 1,069 million USD in 2020, the figure dropped sharply to a negative 219 million USD in 2021, suggesting a significant reversal in accruals. The value surged to 3,008 million USD in 2022, declining again to 548 million USD in 2023, and then turned negative at -505 million USD in 2024. This volatility may reflect changes in earnings management practices or adjustments in accounting estimates during these years.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio follows a similar volatile pattern. It began at 12.74% in 2020, dropped into negative territory at -2.48% in 2021, then sharply increased to 29.46% in 2022, followed by a decline to 4.57% in 2023, and turned negative again to -4.21% in 2024. The oscillation between positive and negative values highlights inconsistent accrual behavior, which could be indicative of varying quality in earnings and financial reporting across these periods.
Cash-Flow-Statement-Based Accruals Ratio
Nike Inc., cash flow statement computation of aggregate accruals
US$ in millions
| May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | May 31, 2020 | May 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income | |||||||
| Less: Cash provided by operations | |||||||
| Less: Cash (used) provided by investing activities | |||||||
| Cash-flow-statement-based aggregate accruals | |||||||
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | |||||||
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| lululemon athletica inc. | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Durables & Apparel | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Discretionary | |||||||
Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).
1 2024 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.
- Net Operating Assets
- The net operating assets exhibited a general upward trend from May 31, 2020, to May 31, 2023, increasing from 8,925 million US dollars to a peak of 12,262 million US dollars. However, there was a slight decrease in the most recent period ending May 31, 2024, dropping to 11,757 million US dollars. This pattern suggests an overall growth in operating assets over the five-year span, with a minor contraction in the latest year.
- Cash-Flow-Statement-Based Aggregate Accruals
- Aggregate accruals demonstrated considerable volatility throughout the periods. The value rose sharply from 1,082 million US dollars in 2020 to 2,870 million in 2021, followed by a decline to 2,382 million in 2022. A marked reversal occurred in 2023 and 2024, with accruals turning negative to -1,335 million and -2,623 million US dollars, respectively. The shift from positive to negative values indicates significant changes in non-cash working capital components or timing differences in cash flow recognition.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio mirrored the trends seen in aggregate accruals, showing elevated positive percentages in the early years: 12.9% in 2020, peaking at 32.56% in 2021, and moderating to 23.33% in 2022. The ratio then transitioned into negative territory, with -11.14% in 2023 and further decreasing to -21.84% in 2024. This shift suggests a move from aggressive accrual generation to a release or reversal of accruals, reflecting changes in earnings quality and potentially more cash-based earnings in the recent years.