Accruals ratio
A measure of the gap between profit and cash flow: how much of the profit rests on accruals rather than on cash received.
Formula
\text{Accruals} = \frac{\text{Profit} - \text{Operating cash flow}}{\text{Average assets}}Stored as a fraction of one. Both components of the numerator are taken over the same period and under the same reporting standard.
How to read the number
A high value means profit is held up by management estimates rather than by cash, and such profit reproduces less well in the following year.
When the metric lies
At a fast-growing company accruals are high by construction: working capital outruns receipts. Telling growth from aggressive accounting takes other evidence.
Also known as: accruals