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
Cash-Flow-Statement-Based Accruals Ratio

Paycom Software Inc., balance sheet computation of aggregate accruals

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Operating Assets
Total assets	3,902,513)	3,215,145)	2,607,912)	2,486,917)	1,521,926)
Less: Cash and cash equivalents	400,730)	277,978)	151,710)	133,667)	45,718)
Operating assets	3,501,783)	2,937,167)	2,456,202)	2,353,250)	1,476,208)
Operating Liabilities
Total liabilities	2,719,906)	2,321,431)	1,952,269)	1,960,289)	1,187,173)
Less: Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Less: Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Operating liabilities	2,690,906)	2,292,276)	1,921,375)	1,927,656)	1,152,784)

Net operating assets¹	810,877)	644,891)	534,827)	425,594)	323,424)
Balance-sheet-based aggregate accruals²	165,986)	110,064)	109,233)	102,170)	—)
Financial Ratio
Balance-sheet-based accruals ratio³	22.80%	18.66%	22.75%	27.28%	—
Benchmarks
Balance-Sheet-Based Accruals Ratio, Industry
Industrials	0.12%	3.77%	5.75%	200.00%	—

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ 2022 Calculation
Net operating assets = Operating assets – Operating liabilities
= 3,501,783 – 2,690,906 = 810,877

² 2022 Calculation
Balance-sheet-based aggregate accruals = Net operating assets₂₀₂₂ – Net operating assets₂₀₂₁
= 810,877 – 644,891 = 165,986

³ 2022 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 165,986 ÷ [(810,877 + 644,891) ÷ 2] = 22.80%

Financial ratio	Description	The company
Balance-sheet-based accruals ratio	Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets.	Using the balance-sheet-based accruals ratio, Paycom Software Inc. deteriorated earnings quality from 2021 to 2022.

Paycom Software Inc., cash flow statement computation of aggregate accruals

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income	281,389)	195,960)	143,453)	180,576)	137,065)
Less: Net cash provided by operating activities	365,103)	319,362)	227,207)	224,263)	184,817)
Less: Net cash (used in) provided by investing activities	(23,286)	(257,670)	(117,877)	(219,545)	62,620)
Cash-flow-statement-based aggregate accruals	(60,428)	134,268)	34,123)	175,858)	(110,372)
Financial Ratio
Cash-flow-statement-based accruals ratio¹	-8.30%	22.76%	7.11%	46.96%	—
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials	-4.47%	-8.82%	-2.05%	-11.47%	—

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ 2022 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -60,428 ÷ [(810,877 + 644,891) ÷ 2] = -8.30%

Financial ratio	Description	The company
Cash-flow-statement-based accruals ratio	Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets.	Using the cash-flow-statement-based accruals ratio, Paycom Software Inc. improved earnings quality from 2021 to 2022.

Paycom Software Inc. (NYSE:PAYC)

Financial Reporting Quality: Aggregate Accruals

Balance-Sheet-Based Accruals Ratio

Cash-Flow-Statement-Based Accruals Ratio