Accrual Ratio
factor.formula
The accrual ratio calculation formula is:
in:
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The net change in current assets, less the net increase in cash and cash equivalents, reflects changes in non-cash current assets.
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Changes in current assets are the difference between total current assets at the end of the reporting period and total current assets at the beginning of the reporting period.
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Net increase in cash and cash equivalents refers to the difference between the net inflow of cash and cash equivalents and the net outflow during the reporting period.
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The net change in current liabilities, net of change in short-term borrowings and change in taxes payable, reflects changes in non-cash current liabilities resulting from operating activities.
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Changes in current liabilities are the difference between total current liabilities at the end of the reporting period and total current liabilities at the beginning of the reporting period.
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The change in short-term borrowings within current liabilities is the difference between the total short-term borrowings at the end of the reporting period and the total short-term borrowings at the beginning of the reporting period.
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The change in taxes payable is the difference between the total taxes payable at the end of the reporting period and the total taxes payable at the beginning of the reporting period.
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Depreciation and amortization is the total amount of depreciation and amortization expense accrued during the reporting period and represents a non-cash charge.
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Average total assets refers to the average of total assets at the beginning and end of the reporting period. It is used to standardize the accrued earnings in the numerator and eliminate the comparability differences between companies of different sizes.
factor.explanation
This factor is based on the concept of accrued earnings. It approximates the accrued profit portion of the enterprise in the current period by calculating the changes in non-cash current assets and non-cash current liabilities as well as depreciation and amortization. Since accrued earnings are usually more flexible and easily manipulated by management, they are considered an important indicator for evaluating earnings quality. The higher the value of this factor, the higher the proportion of the enterprise's current accrued earnings to total assets, and the lower the earnings quality may be. Conversely, the lower the value of this factor, the lower the proportion of the enterprise's current accrued earnings to total assets, and the higher the earnings quality may be. Investors can identify potential earnings management behaviors by analyzing this factor, so as to better evaluate the company's true profitability and the sustainability of future earnings. It should be noted that in industry comparisons, due to differences in business models and asset structures, there may be systematic differences in accrued earnings ratios in different industries, so caution should be exercised when comparing across industries.