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: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to Earnings (P/E) since 2012
- Analysis of Debt
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Balance-Sheet-Based Accruals Ratio
ServiceNow 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: Current debt, net | ||||||
| Less: Long-term debt, net, less 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 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Software & Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
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.
The data reveals significant fluctuations in the financial reporting quality indicators over the four-year period.
- Net Operating Assets
- There is a consistent upward trend in net operating assets from US$1,967 million in 2021 to US$5,336 million in 2024. The value more than doubled between 2022 and 2024, suggesting expansion or increased asset utilization during this period.
- Balance-Sheet-Based Aggregate Accruals
- This metric exhibits considerable volatility. It decreased sharply from US$584 million in 2021 to US$271 million in 2022, then surged to US$2,001 million in 2023 before declining again to US$1,097 million in 2024. Such fluctuations may reflect changing accrual accounting estimates or variations in non-cash items affecting earnings quality.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, follows a similar volatile pattern. Starting at 34.89% in 2021, it dropped significantly to 12.89% in 2022, peaked sharply at 61.79% in 2023, and then reduced to 22.91% in 2024. This ratio suggests variable accrual intensity relative to operating assets, which can impact the assessment of earnings quality and potential earnings management.
Overall, the data indicates increasing net operating assets alongside notable instability in accrual measures. The pronounced spikes and declines in accrual-related figures warrant further investigation to understand underlying operational or accounting factors influencing these variations.
Cash-Flow-Statement-Based Accruals Ratio
ServiceNow Inc., cash flow statement computation of aggregate accruals
US$ in millions
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Net cash provided by operating activities | ||||||
| Less: Net cash 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 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Software & Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Information Technology | ||||||
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 significant upward trend over the four-year period. Starting at 1,967 million US dollars at the end of 2021, the figure rises to 2,238 million in 2022, then nearly doubles to 4,239 million in 2023, and further increases to 5,336 million in 2024. This consistent growth indicates an expansion in the company's operational asset base, suggesting increased investment in operations or growth in operating capabilities.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals show variability and oscillation between positive and negative values. In 2021, the figure is negative at -354 million US dollars, turns positive to 185 million in 2022 and increases further to 500 million in 2023, before once again dropping sharply to a negative value of -341 million in 2024. This fluctuation points to inconsistency in accrual accounting adjustments as reflected in cash flows, possibly indicating changing operational adjustments or differences in timing of cash receipts and payments.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio mirrors the pattern observed in aggregate accruals, moving from negative to positive and back to negative values over the period. The ratio is -21.14% in 2021, rising to 8.8% in 2022 and peaking at 15.44% in 2023, before falling to -7.12% in 2024. The negative values at the beginning and end of the period suggest periods where cash flows exceed earnings on an accrual basis, whereas the positive values in the middle years indicate the opposite. This variability may reflect volatility in earnings quality or changes in the timing and recognition of revenue and expenses.