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
Cash-Flow-Statement-Based Accruals Ratio

Waste Management Inc., balance sheet computation of aggregate accruals

US$ in millions

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Operating Assets
Total assets	29,097)	29,345)	27,743)	22,650)	21,829)
Less: Cash and cash equivalents	118)	553)	3,561)	61)	22)
Operating assets	28,979)	28,792)	24,182)	22,589)	21,807)
Operating Liabilities
Total liabilities	21,971)	21,891)	20,673)	16,374)	15,787)
Less: Current portion of long-term debt	708)	551)	218)	432)	739)
Less: Long-term debt, less current portion	12,697)	13,259)	13,280)	9,594)	8,752)
Operating liabilities	8,566)	8,081)	7,175)	6,348)	6,296)

Net operating assets¹	20,413)	20,711)	17,007)	16,241)	15,511)
Balance-sheet-based aggregate accruals²	(298)	3,704)	766)	730)	—)
Financial Ratio
Balance-sheet-based accruals ratio³	-1.45%	19.64%	4.61%	4.60%	—
Benchmarks
Balance-Sheet-Based Accruals Ratio, Industry
Industrials	3.77%	5.75%	200.00%	—	—

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ 2021 Calculation
Net operating assets = Operating assets – Operating liabilities
= 28,979 – 8,566 = 20,413

² 2021 Calculation
Balance-sheet-based aggregate accruals = Net operating assets₂₀₂₁ – Net operating assets₂₀₂₀
= 20,413 – 20,711 = -298

³ 2021 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × -298 ÷ [(20,413 + 20,711) ÷ 2] = -1.45%

Financial ratio	Description	The company
Balance-sheet-based accruals ratio	Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets.	Using the balance-sheet-based accruals ratio, Waste Management Inc. improved earnings quality from 2020 to 2021.

Waste Management Inc., cash flow statement computation of aggregate accruals

US$ in millions

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income attributable to Waste Management, Inc.	1,816)	1,496)	1,670)	1,925)	1,949)
Less: Net cash provided by operating activities	4,338)	3,403)	3,874)	3,570)	3,180)
Less: Net cash used in investing activities	(1,894)	(4,847)	(2,376)	(2,169)	(1,379)
Cash-flow-statement-based aggregate accruals	(628)	2,940)	172)	524)	148)
Financial Ratio
Cash-flow-statement-based accruals ratio¹	-3.05%	15.59%	1.03%	3.30%	—
Benchmarks
Cash-Flow-Statement-Based Accruals Ratio, Industry
Industrials	-8.82%	-2.05%	-11.47%	—	—

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ 2021 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × -628 ÷ [(20,413 + 20,711) ÷ 2] = -3.05%

Financial ratio	Description	The company
Cash-flow-statement-based accruals ratio	Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets.	Using the cash-flow-statement-based accruals ratio, Waste Management Inc. improved earnings quality from 2020 to 2021.

Waste Management Inc. (NYSE:WM)

Financial Reporting Quality: Aggregate Accruals

Balance-Sheet-Based Accruals Ratio

Cash-Flow-Statement-Based Accruals Ratio