Accruals-to-Assets Ratio
factor.formula
Accruals-to-Assets Ratio
Accruals calculation formula
The calculation formula of Average Assets
in:
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Accrued earnings for the last 12 months (TTM). It refers to the non-cash income and expenses incurred by the company in the past 12 months. It is calculated by deducting the net cash flow from operating activities from the net profit.
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The net profit of a company for a specific period, usually taken from the income statement. It is the final profit after all the company's income has been deducted from all its expenses.
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Net cash flow from operating activities is taken from the cash flow statement. It represents the actual cash inflows and outflows generated by the company in its main business operations.
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Average Total Assets represents the average amount of assets owned by a company during the calculation period. It is the average of the total assets at the beginning and end of the period and is used to measure the size of a company and as a normalized basis for accruing earnings.
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Beginning Total Assets represents the total asset value of the company at the beginning of the calculation period. Usually taken from the beginning balance sheet.
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Ending Total Assets represents the total asset value of the company at the end of the calculation period. Usually taken from the ending balance sheet.
factor.explanation
The accrued earnings to asset ratio is an indicator to measure the quality of a company's earnings. A higher ratio may indicate that the company is overly dependent on non-cash items in its earnings, which increases the controllability and uncertainty of earnings, thereby reducing the sustainability of earnings. In this case, investors may misjudge the company's true profitability, leading to mispricing of securities. Conversely, a lower ratio may indicate that the company's earnings are more cash-based and more reliable. Therefore, this indicator can not only be used to identify earnings management risks, but also assist investors in assessing the company's financial soundness and earnings sustainability. In quantitative investment, it can be used as an important component of constructing value or quality factors.