Accrual Ratio
factor.formula
Accrual Ratio:
Accrued earnings calculation formula:
in:
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The total accrued earnings for the last 12 months (TTM). This value is obtained by deducting the net cash flow from operating activities (CFO) from the net profit, and represents the income recognized by the company in non-cash ways during the reporting period.
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Net profit for the last 12 months (TTM). This value represents the final total profit achieved by the company during the reporting period.
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A company's net profit refers to the final financial result of the enterprise's operating activities over a certain period of time.
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The net cash flow generated from operating activities refers to the net cash actually flowing in/out through operating activities of an enterprise over a certain period of time, reflecting the cash creation ability of the enterprise's core business.
factor.explanation
The accrual earnings ratio reflects the proportion of non-cash components (i.e., accruals) in a company's net profit. A high accrual earnings ratio is generally considered a sign of low earnings quality, because it may mean that the company relies too much on accruals to manage earnings in order to achieve its earnings target, while the actual cash inflow is relatively small. Investors can evaluate the authenticity and sustainability of a company's financial reports and identify possible earnings management risks by analyzing this ratio.