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% | — | — | — | |
| Target Corp. | 2.06% | 19.69% | 10.33% | — | — | — | |
| Walmart Inc. | 6.15% | 0.02% | 1.09% | — | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 6.12% | 2.78% | 4.30% | 200.00% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | 1.15% | 2.58% | 7.61% | 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.
An analysis of the financial reporting quality reveals a consistent expansion of net operating assets alongside significant volatility in the balance-sheet-based accruals ratio over the five-year period ending June 29, 2024.
- Net Operating Assets (NOA)
- Net operating assets exhibited a steady upward trajectory, increasing from US$ 9,580 million in 2020 to US$ 13,177 million in 2024. This represents a continuous growth pattern, indicating a sustained expansion of the operational asset base over the analyzed timeframe.
- Balance-Sheet-Based Aggregate Accruals
- Aggregate accruals transitioned from a negative value of US$ -608 million in 2020 to positive values in all subsequent years. The figures showed significant fluctuation, peaking at US$ 1,531 million in 2022, declining to US$ 513 million in 2023, and rebounding to US$ 1,470 million in 2024.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the volatility of aggregate accruals, shifting from -6.15% in 2020 to a peak of 14.68% in 2022. After a correction to 4.48% in 2023, the ratio rose again to 11.81% in 2024. The movement from negative to positive ratios indicates a changing relationship between reported accounting earnings and the cash flow generated by operating assets.
The observed patterns indicate that while the operational scale of the company has grown linearly, the accrual-to-asset relationship has been inconsistent. The sharp increases in the accruals ratio in 2022 and 2024 suggest periods where accounting earnings were substantially higher than their cash flow equivalents, which typically indicates a decrease in the quality of earnings and a higher reliance on non-cash accounting entries to drive reported profitability.
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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% | — | — | — | |
| Target Corp. | 1.09% | 18.64% | 7.52% | — | — | — | |
| Walmart Inc. | 0.87% | 0.47% | -3.77% | — | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Consumer Staples Distribution & Retail | 1.06% | 3.13% | -0.42% | -21.72% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Consumer Staples | -0.17% | 2.27% | 4.81% | -9.79% | — | — | |
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.
An analysis of the financial reporting quality reveals a steady expansion of the operational asset base contrasted with significant volatility in aggregate accruals and the resulting accruals ratio over the five-year period ending June 29, 2024.
- Net Operating Assets Trend
- Net operating assets demonstrated a consistent upward trajectory, increasing from 9,580 million USD in June 2020 to 13,177 million USD by June 2024. This growth indicates a sustained expansion in the scale of the company's operational investments over the analyzed timeframe.
- Aggregate Accruals Volatility
- Cash-flow-statement-based aggregate accruals exhibited marked fluctuations. Negative values were recorded in 2020 (-647 million USD), 2021 (-951 million USD), and 2023 (-313 million USD). These were interspersed with significant positive spikes in 2022 (1,446 million USD) and 2024 (928 million USD), reflecting a non-linear relationship between reported net income and actual cash flow.
- Accruals Ratio and Earnings Quality
- The accruals ratio mirrored the volatility of the aggregate accruals, shifting from a low of -9.88% in 2021 to a peak of 13.86% in 2022, before ending at 7.46% in 2024. The negative ratios observed in 2020, 2021, and 2023 suggest periods where cash flow from operations exceeded net income, which is typically associated with higher earnings quality. The transition to positive ratios in 2022 and 2024 indicates periods where net income exceeded cash flow, suggesting a higher reliance on non-cash accruals to drive reported profitability during those specific years.
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