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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Texas Pacific Land Corp. pages available for free this week:
- Statement of Comprehensive Income
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
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Balance-Sheet-Based Accruals Ratio
Texas Pacific Land Corp., balance sheet computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Operating Assets | ||||||
| Total assets | ||||||
| Less: Cash and cash equivalents | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Occidental Petroleum Corp. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 Calculation
Net operating assets = Operating assets – Operating liabilities
= – =
2 2023 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2023 – Net operating assets2022
= – =
3 2023 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 a consistent and significant increase in net operating assets over the four-year period, rising from $204,138 thousand at the end of 2020 to $318,027 thousand by the end of 2023. This upward trajectory suggests ongoing expansion or reinvestment activities within operating assets.
Balance-sheet-based aggregate accruals exhibit a notable shift from negative to positive values throughout the period. Beginning at -$4,354 thousand at the end of 2020, the accruals changed to $19,331 thousand in 2021 and continued to rise, reaching $55,974 thousand in 2023. This transition indicates a move from a net decrease in accrued items to a net increase over time.
Correspondingly, the balance-sheet-based accruals ratio increased steadily from a negative -2.11% in 2020 to 19.3% by the end of 2023. This trend reflects a growing proportion of accruals relative to net operating assets. The ratio's progression underscores increasing accrual-based adjustments in the company's financial reporting.
Overall, the data points to a strengthening position of net operating assets combined with rising accruals, which may suggest changes in earnings management practices or shifts in the company's operational and financial strategies. The consistent growth in both absolute accrual amounts and their ratio to net operating assets merits further investigation to understand the underlying drivers and their potential implications for financial quality.
Cash-Flow-Statement-Based Accruals Ratio
Texas Pacific Land Corp., cash flow statement computation of aggregate accruals
US$ in thousands
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Net income | ||||||
| Less: Cash provided by operating activities | ||||||
| Less: 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 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
| Occidental Petroleum Corp. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Oil, Gas & Consumable Fuels | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Energy | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 2023 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 have shown a steady and significant increase over the four-year period. Starting at 204,138 thousand US dollars in 2020, the figure rose to 223,469 thousand in 2021, then to 262,053 thousand in 2022, and finally reached 318,027 thousand by the end of 2023. This consistent upward trend suggests expanding operational scale or asset base.
- Cash-Flow-Statement-Based Aggregate Accruals
- This measure exhibited a marked shift from negative to positive values over the observed years. It began at -4,990 thousand US dollars in 2020, turning to 19,814 thousand in 2021, then slightly increasing to 20,614 thousand in 2022, and further rising to 47,669 thousand in 2023. The transition from negative to positive values and the overall upward trajectory indicate changes in accrual accounting components contributing positively to cash flows or improved earnings quality.
- Cash-Flow-Statement-Based Accruals Ratio
- The accruals ratio experienced a notable rise across the period, moving from -2.42% in 2020 to 9.27% in 2021, then slightly dipping to 8.49% in 2022, and sharply increasing again to 16.44% in 2023. The initial negative ratio suggests a period of cash flow outpacing earnings adjustments, while the subsequent increases reflect a growing proportion of accruals relative to cash flows, potentially signaling changes in earnings recognition or asset/liability management.