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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Pfizer Inc. pages available for free this week:
- Cash Flow Statement
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Debt to Equity since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
Pfizer Inc., 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 | ||||||
| Less: Short-term investments | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings, including current portion of long-term debt | ||||||
| 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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
- Net operating assets exhibited a generally increasing trend from 2021 through 2023, rising from 84,830 million USD in 2021 to a peak of 148,486 million USD in 2023. However, there was a notable decline in 2024, with net operating assets decreasing to 132,371 million USD. This indicates an expansion phase followed by a moderate contraction in operating asset base during the latest reported period.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals metric showed significant volatility across the observed periods. It was negative in 2021 at -6,258 million USD, sharply increased to a positive 24,184 million USD in 2022, and further rose to 39,472 million USD in 2023. In 2024, the value reverted to a substantial negative figure of -16,115 million USD. This fluctuation suggests varying degrees of accrual adjustments impacting earnings quality from year to year.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the pattern observed in aggregate accruals, with negative values in 2021 (-7.11%), turning positive and escalating to 24.95% in 2022 and 30.66% in 2023 before falling back to a negative ratio of -11.48% in 2024. The positive ratios in 2022 and 2023 suggest increased accrual-based earnings, potentially indicating higher earnings management or adjustments during these years, while the negative ratios in 2021 and 2024 reflect the opposite trend.
Cash-Flow-Statement-Based Accruals Ratio
Pfizer Inc., 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 attributable to Pfizer Inc. common shareholders | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash (used in) 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 | ||||||
| AbbVie Inc. | ||||||
| Amgen Inc. | ||||||
| Bristol-Myers Squibb Co. | ||||||
| Danaher Corp. | ||||||
| Eli Lilly & Co. | ||||||
| Gilead Sciences Inc. | ||||||
| Johnson & Johnson | ||||||
| Merck & Co. Inc. | ||||||
| Regeneron Pharmaceuticals Inc. | ||||||
| Thermo Fisher Scientific Inc. | ||||||
| Vertex Pharmaceuticals Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Pharmaceuticals, Biotechnology & Life Sciences | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Health Care | ||||||
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 exhibited an overall upward trend from 2021 to 2023, increasing from 84,830 million US dollars to a peak of 148,486 million US dollars. However, in 2024, there was a decline to 132,371 million US dollars, representing a reduction from the previous year but still substantially higher than the values in 2021 and 2022.
- Cash-flow-statement-based Aggregate Accruals
- The cash-flow-statement-based aggregate accruals showed a consistent increase from 11,591 million US dollars in 2021 to 25,697 million US dollars in 2023, indicating rising accrual levels over this period. Notably, 2024 saw a significant reversal, with the accruals turning negative to -7,365 million US dollars. This sharp change suggests a major shift in the operational cash flow or earnings quality in the latest period.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, expressed as a percentage, mirrored the trend of aggregate accruals, initially increasing from 13.18% in 2021 to 19.96% in 2023, indicating a growing proportion of accruals relative to net operating assets. In 2024, this ratio reversed sharply to -5.24%, consistent with the negative aggregate accruals figure. This negative value points to a distinct change in the relationship between accruals and operating assets, suggesting potential improvements in cash flow quality or adjustments in accounting practices during 2024.
- Summary
- Overall, the data reflect increasing net operating assets and accrual-related measures through 2023, highlighting an intensification in accrual accounting activities relative to operating assets. The abrupt reversal in both aggregate accruals and accruals ratio in 2024, accompanied by a decrease in net operating assets, indicates a notable shift in financial reporting quality or business operations for that year. These developments warrant further examination to understand the underlying causes and implications for earnings quality and cash flow sustainability.