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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Verizon Communications Inc. pages available for free this week:
- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Price to Book Value (P/BV) since 2005
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Balance-Sheet-Based Accruals Ratio
Verizon Communications 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 | ||||||
| Operating assets | ||||||
| Operating Liabilities | ||||||
| Total liabilities | ||||||
| Less: Debt maturing within one year | ||||||
| Less: Long-term debt, excluding maturing within one year | ||||||
| Operating liabilities | ||||||
| Net operating assets1 | ||||||
| Balance-sheet-based aggregate accruals2 | ||||||
| Financial Ratio | ||||||
| Balance-sheet-based accruals ratio3 | ||||||
| Benchmarks | ||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | ||||||
| AT&T Inc. | ||||||
| T-Mobile US Inc. | ||||||
| Balance-Sheet-Based Accruals Ratio, Sector | ||||||
| Telecommunication Services | ||||||
| Balance-Sheet-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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.
- Net Operating Assets
- The net operating assets exhibited a gradual increase from 231,147 million US dollars at the end of 2021 to 242,408 million in 2023. However, there was a slight decline to 240,395 million in 2024. This trend indicates overall stability with minor fluctuations over the four-year period, suggesting a relatively consistent base of operating assets with a small reduction in the last reported year.
- Balance-Sheet-Based Aggregate Accruals
- The balance-sheet-based aggregate accruals displayed a significant and steady decrease over the period. Beginning at a high of 54,984 million US dollars in 2021, the figure sharply declined to 9,350 million in 2022, then further to 1,911 million in 2023, and finally turned negative to -2,013 million in 2024. This continuous downward trend, culminating in negative accruals, suggests an improving quality of earnings with diminishing reliance on accrual-based adjustments.
- Balance-Sheet-Based Accruals Ratio
- The accruals ratio mirrored the trend observed in aggregate accruals, starting at a notably high 27% in 2021, decreasing significantly to 3.96% in 2022, further reducing to 0.79% in 2023, and eventually moving into negative territory at -0.83% in 2024. This progression indicates a marked decline in accrual intensity relative to net operating assets, which may reflect a shift towards more cash-based, transparent earnings or potentially changes in accounting practices or asset compositions.
Cash-Flow-Statement-Based Accruals Ratio
Verizon Communications 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 attributable to Verizon | ||||||
| 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 | ||||||
| AT&T Inc. | ||||||
| T-Mobile US Inc. | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Sector | ||||||
| Telecommunication Services | ||||||
| Cash-Flow-Statement-Based Accruals Ratio, Industry | ||||||
| Communication Services | ||||||
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 exhibited a gradual increase from 231,147 million US dollars in 2021 to 242,408 million US dollars in 2023, followed by a slight decline to 240,395 million US dollars in 2024. This trend reflects a generally stable investment in operational resources over the four-year period with minor fluctuations in the most recent year.
- Cash-flow-statement-based Aggregate Accruals
- Aggregate accruals experienced a significant decline across the timeframe. Starting at 49,679 million US dollars in 2021, the value sharply decreased to 12,777 million US dollars in 2022. It further moved into negative territory in 2023, reaching -2,429 million US dollars, and remained negative, though less so, at -732 million US dollars in 2024. This pattern indicates a marked reduction in accrual components linked to cash flow, moving from a positive to a negative accrual base.
- Cash-flow-statement-based Accruals Ratio
- The accruals ratio showed a substantial decrease over the period. Beginning at 24.39% in 2021, it dropped sharply to 5.42% in 2022, and continued to decline into negative percentages, reaching -1.01% in 2023 and -0.3% in 2024. This decline suggests an improvement in the quality of earnings, as lower or negative accrual ratios typically correlate with cleaner cash flow earnings relative to net operating assets.