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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Occidental Petroleum Corp. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Assets
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Occidental Petroleum Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Current maturities of long-term debt | ||||||
| Less: Long-term debt, net, excluding current maturities | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 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), 10-K (reporting date: 2020-12-31).
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 increased steadily from 47,180 million US$ at the end of 2021 to 48,936 million US$ at the end of 2022. A slight decrease followed in 2023, bringing the figure down to 48,661 million US$, but a significant rise occurred in 2024, reaching 58,464 million US$. This overall upward trend indicates expanding investment in operating assets over the observed period, with a notable acceleration in the final year.
- Balance-Sheet-Based Aggregate Accruals
- The balance-sheet-based aggregate accruals exhibited considerable volatility. In 2021, the accruals were negative at -5,570 million US$, shifting sharply to a positive 1,756 million US$ in 2022. This was followed by a marginal negative value of -275 million US$ in 2023, before surging to a substantial positive figure of 9,803 million US$ in 2024. Such fluctuations suggest varying levels of accrual adjustments year over year, with a marked increase in accruals in 2024 that may warrant further examination regarding underlying causes.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the changes seen in aggregate accruals but normalized as a percentage of net operating assets. From a negative ratio of -11.15% in 2021, it moved into positive territory at 3.65% in 2022, dipped slightly negative again to -0.56% in 2023, and then sharply increased to 18.3% in 2024. The ratio's high volatility, culminating in a significant rise in 2024, may indicate increased accrual-based earnings management or changes in accounting policies impacting earnings quality during the latest period.
Cash-Flow-Statement-Based Accruals Ratio
Occidental Petroleum Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income (loss) attributable to Occidental | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash used 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 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 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), 10-K (reporting date: 2020-12-31).
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 exhibit a general increasing trend over the four-year period. Starting at $47,180 million at the end of 2021, the value rose slightly to $48,936 million in 2022, followed by a marginal decline to $48,661 million in 2023. In 2024, a notable increase brought the net operating assets to $58,464 million, the highest value in the period. This suggests overall growth in the company's investment in operations, with a significant asset expansion occurring in 2024.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show substantial volatility throughout the years. In 2021, aggregate accruals were significantly negative at -$6,757 million, indicating large outflows relative to cash flows. This shifted drastically in 2022, resulting in a positive figure of $1,366 million, reflecting a reversal or adjustment in accrual components. The year 2023 saw a return to negative accruals of -$632 million, though of a smaller magnitude than in 2021. By 2024, aggregate accruals increased markedly to $5,907 million, signaling a considerable change in the accrual composition or accounting adjustments impacting cash flow reporting. Such fluctuations may point to variability in earnings quality or accounting management across the period.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, mirrors the trends observed in aggregate accruals but provides a normalized view. It starts with a negative ratio of -13.52% in 2021, indicating that accruals constituted a negative proportion relative to operating assets. In 2022, the ratio turned positive at 2.84%, then slightly negative again in 2023 at -1.3%. By 2024, the ratio increased significantly to 11.03%. This pattern underscores high fluctuations in the relationship between accruals and net operating assets, suggesting shifts in earnings quality. The positive and increasing ratio in 2024 may denote more aggressive recognition of revenues or expenses that do not immediately impact cash flows, potentially affecting the reliability of earnings.