Cash Quality

What is the accruals ratio?

The gap between accounting profit and cash profit, relative to the size of the company. High accruals often precede disappointing earnings.

How it is calculated

Net income minus operating cash flow, divided by average total assets.

How to read it

Near zero or negative is reassuring. A large positive value for several periods deserves scrutiny.

Keep in mind

Uses the average of the opening and closing balance, so the first period in a company’s history shows no figure.

Where the numbers come from

Scrutar computes the accruals ratio from the figures each company reports to the SEC in its annual and quarterly filings, using the XBRL data attached to those filings.

More Cash Quality metrics

FCF MarginThe share of revenue that becomes free cash.How to read it →FCF / Net IncomeHow much of reported profit shows up as free cash. Sometimes called cash conversion.How to read it →Capex / D&AWhether the company is investing more in its assets than they wear out.How to read it →SBC / RevenueStock compensation as a share of sales, a measure of how much of the business is being paid to employees in shares.How to read it →Days Sales OutstandingHow many days, on average, the company waits to collect cash after a sale.How to read it →Days InventoryHow many days it takes to sell through the inventory on hand.How to read it →Days PayableHow many days the company takes to pay its suppliers.How to read it →Cash Conversion CycleHow many days cash is tied up between paying suppliers and collecting from customers. Negative means customers pay before suppliers are paid.How to read it →

See it for a real company

Ten years of the accruals ratio and every other metric on this page, for every company Scrutar covers, computed from SEC filings.

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