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.
Balance-Sheet-Based Accruals Ratio
Sysco Corp., balance sheet computation of aggregate accruals
US$ in millions
| Jun 29, 2024 | Jul 1, 2023 | Jul 2, 2022 | Jul 3, 2021 | Jun 27, 2020 | Jun 29, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 24,917) | 22,821) | 22,086) | 21,414) | 22,628) | 17,967) | |
| Less: Cash and cash equivalents | 696) | 745) | 867) | 3,007) | 6,059) | 513) | |
| Operating assets | 24,221) | 22,076) | 21,219) | 18,406) | 16,569) | 17,453) | |
| Operating Liabilities | |||||||
| Total liabilities | 23,026) | 20,779) | 20,671) | 19,826) | 21,435) | 15,428) | |
| Less: Current maturities of long-term debt | 469) | 63) | 581) | 495) | 1,544) | 41) | |
| Less: Long-term debt, excluding current maturities | 11,513) | 10,348) | 10,067) | 10,588) | 12,902) | 8,122) | |
| Operating liabilities | 11,044) | 10,369) | 10,024) | 8,743) | 6,989) | 7,265) | |
| Net operating assets1 | 13,177) | 11,707) | 11,195) | 9,663) | 9,580) | 10,188) | |
| Balance-sheet-based aggregate accruals2 | 1,470) | 513) | 1,531) | 83) | (608) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 11.81% | 4.48% | 14.68% | 0.86% | -6.15% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Costco Wholesale Corp. | 11.49% | -0.39% | 20.71% | 5.32% | — | — | |
| Target Corp. | 2.06% | 19.69% | 10.33% | -10.90% | — | — | |
| Walmart Inc. | 6.15% | 0.02% | 1.09% | -6.44% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 6.12% | 2.78% | 4.30% | -5.94% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 1.15% | 2.58% | 7.61% | -0.13% | 200.00% | — | |
Based on: 10-K (reporting date: 2024-06-29), 10-K (reporting date: 2023-07-01), 10-K (reporting date: 2022-07-02), 10-K (reporting date: 2021-07-03), 10-K (reporting date: 2020-06-27), 10-K (reporting date: 2019-06-29).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 24,221 – 11,044 = 13,177
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 13,177 – 11,707 = 1,470
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 1,470 ÷ [(13,177 + 11,707) ÷ 2] = 11.81%
4 Click competitor name to see calculations.
- Net Operating Assets
- Net operating assets demonstrated a consistent upward trend over the five-year period. Starting at 9,580 million US dollars in mid-2020, the figure increased marginally to 9,663 million in 2021 before showing more significant growth in subsequent years. By mid-2024, net operating assets reached 13,177 million US dollars, representing a substantial increase of approximately 37.5% from 2020 to 2024.
- Balance-Sheet-Based Aggregate Accruals
- The aggregate accruals showed considerable fluctuations throughout the period. In 2020, accruals were negative at -608 million US dollars, indicating a possible reversal or adjustment of prior accruals. In 2021, this swung to a positive figure of 83 million US dollars, followed by a sharp rise to 1,531 million in 2022. The value declined again to 513 million in 2023, before increasing notably to 1,470 million in 2024. This volatile pattern suggests varying accrual activities and potential inconsistencies in earnings quality over these years.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio, expressed as a percentage of net operating assets, reflected similar volatility. Initially, in 2020, the ratio was negative at -6.15%, coinciding with the negative aggregate accruals. It then rose to a modest 0.86% in 2021, followed by a sharp increase to 14.68% in 2022. The ratio subsequently decreased to 4.48% in 2023 and increased again to 11.81% in 2024. These fluctuations imply instability in the proportion of accruals relative to operating assets, which could point to variable earnings quality or shifts in accounting policies and estimates.
Cash-Flow-Statement-Based Accruals Ratio
Sysco Corp., cash flow statement computation of aggregate accruals
US$ in millions
| Jun 29, 2024 | Jul 1, 2023 | Jul 2, 2022 | Jul 3, 2021 | Jun 27, 2020 | Jun 29, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net earnings | 1,955) | 1,770) | 1,359) | 524) | 215) | 1,674) | |
| Less: Net cash provided by operating activities | 2,989) | 2,868) | 1,791) | 1,904) | 1,619) | 2,411) | |
| Less: Net cash used for investing activities | (1,962) | (785) | (1,878) | (429) | (756) | (743) | |
| Cash-flow-statement-based aggregate accruals | 928) | (313) | 1,446) | (951) | (647) | 6) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 7.46% | -2.73% | 13.86% | -9.88% | -6.54% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Costco Wholesale Corp. | 2.33% | 1.10% | 14.69% | -2.96% | — | — | |
| Target Corp. | 1.09% | 18.64% | 7.52% | -18.12% | — | — | |
| Walmart Inc. | 0.87% | 0.47% | -3.77% | -10.19% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 1.06% | 3.13% | -0.42% | -10.54% | -3.84% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | -0.17% | 2.27% | 4.81% | -4.89% | -2.34% | — | |
Based on: 10-K (reporting date: 2024-06-29), 10-K (reporting date: 2023-07-01), 10-K (reporting date: 2022-07-02), 10-K (reporting date: 2021-07-03), 10-K (reporting date: 2020-06-27), 10-K (reporting date: 2019-06-29).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 928 ÷ [(13,177 + 11,707) ÷ 2] = 7.46%
2 Click competitor name to see calculations.
- Net Operating Assets
- The net operating assets demonstrate a consistent upward trend over the five-year period. Starting from 9,580 million US dollars in mid-2020, there is a steady increase each year, reaching 13,177 million US dollars by mid-2024. This growth indicates an expansion in the company’s operating asset base, reflecting possible investments in operations or growth in operational holdings.
- Cash-flow-statement-based Aggregate Accruals
- The aggregate accruals exhibit considerable volatility throughout the analyzed period. In mid-2020 and mid-2021, negative accrual values (-647 million and -951 million US dollars respectively) suggest a conservative reporting or timing differences between earnings and cash flows. A significant positive spike occurs in mid-2022, with accruals rising sharply to 1,446 million US dollars, which may indicate increased accrual-based earnings components or unusual adjustments. Subsequently, accruals decline again to negative territory in mid-2023 (-313 million US dollars) before increasing to 928 million US dollars by mid-2024. This fluctuation points towards variability in earnings quality from accruals over time.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio, representing accruals as a percentage of net operating assets, mirrors the variability seen in aggregate accruals. The ratio is negative in the first two years (-6.54% in 2020 and -9.88% in 2021), indicating accruals decreased relative to net operating assets. This shifts to a positive 13.86% in mid-2022, reflecting a substantial increase in accruals relative to asset size, which could be indicative of less conservative accounting or more aggressive earnings recognition. The ratio again declines to a slightly negative -2.73% in mid-2023, and then increases to 7.46% in mid-2024. Such fluctuations suggest inconsistency in earnings quality, with potential impacts on the reliability of accrual-based earnings components.