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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- Statement of Comprehensive Income
- Balance Sheet: Assets
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
RTX Corp., balance sheet computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Short-term borrowings | ||||||
| Less: Long-term debt currently due | ||||||
| Less: Long-term debt, excluding currently due | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2025 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2025 – Net operating assets2024
= – =
3 2025 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 experienced a slight decline over the four-year period, decreasing from US$99,908 million in 2022 to US$97,607 million in 2025. However, the most notable movement is observed in balance-sheet-based aggregate accruals and the resulting accruals ratio.
- Balance-Sheet-Based Aggregate Accruals
- Balance-sheet-based aggregate accruals exhibited a significant shift from a positive value of US$1,556 million in 2022 to a negative value of US$-34 million in 2025. This represents a substantial decrease in accruals. The largest single-year change occurred between 2022 and 2023, with accruals decreasing by US$2,779 million. Subsequent decreases were more moderate, though still negative, in both 2023 and 2024. The final year shows a near-elimination of accruals.
- Balance-Sheet-Based Accruals Ratio
- The balance-sheet-based accruals ratio mirrors the trend in aggregate accruals. Starting at 1.57% in 2022, the ratio became negative in 2023, reaching -1.23%. It continued to decrease in magnitude, though remaining negative, to -1.06% in 2024. By 2025, the ratio had nearly reached zero, registering at -0.03%. This indicates a diminishing reliance on accruals relative to net operating assets.
The consistent decline in both aggregate accruals and the accruals ratio suggests a potential shift in the company’s financial reporting. The initial positive accruals in 2022 may have indicated a build-up of deferred revenues or expenses. The subsequent negative accruals and ratio suggest a reversal of these trends, potentially reflecting increased cash earnings or a more conservative approach to revenue and expense recognition. The near-zero accruals ratio in 2025 could indicate a closer alignment between reported earnings and cash flows.
Cash-Flow-Statement-Based Accruals Ratio
RTX Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Net income attributable to common shareowners | ||||||
| Less: Net cash flows provided by operating activities | ||||||
| Less: Net cash flows used in investing activities | ||||||
| Cash-flow-statement-based aggregate accruals | ||||||
| Financial Ratio | ||||||
| Cash-flow-statement-based accruals ratio1 | ||||||
| Benchmarks | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Capital Goods | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Industrials | ||||||
Based on: 10-K (reporting date: 2025-12-31), 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).
1 2025 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 experienced a slight decline over the four-year period, decreasing from US$99,908 million in 2022 to US$97,607 million in 2025. However, the most notable movement is observed in cash-flow-statement-based aggregate accruals and the resulting accruals ratio.
- Cash-flow-statement-based Aggregate Accruals
- Cash-flow-statement-based aggregate accruals exhibited significant volatility. Initially, accruals stood at US$858 million in 2022. A substantial decrease occurred in 2023, with accruals becoming negative at -US$1,649 million. Accruals partially recovered in 2024 to -US$851 million, but then declined further to -US$2,570 million in 2025. This pattern suggests increasing reliance on cash to fund operations in later years.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrored the trend in aggregate accruals. Starting at 0.87% in 2022, the ratio turned negative in 2023, reaching -1.66%. It moderated to -0.87% in 2024 before declining to -2.63% in 2025. A consistently negative and increasing (in magnitude) accruals ratio may indicate potential concerns regarding the quality of earnings, as it suggests that net income is increasingly less supported by cash flows from operations.
- Overall Trend
- The combined trends indicate a shift in the company’s financial characteristics. The initial positive accruals in 2022 suggest a degree of earnings quality supported by accruals. However, the subsequent and growing negative accruals ratio raises a flag for further investigation. The increasing negative ratio implies a growing disconnect between reported earnings and actual cash generation, potentially signaling aggressive revenue recognition or delayed expense recognition. The consistent decline in net operating assets alongside these accrual trends warrants further scrutiny.