Sloan · Accruals anomaly
Measures how much of reported profit has not yet turned into real cash via (net income − operating cash flow) / total assets; a higher accrual ratio has historically predicted lower future returns.
- Guide level
- Practical
- Output
- Screening and validation
Core formula
Accrual ratio = (net income − operating cash flow) / total assetsHow to interpret it
Measures how much of reported profit has not yet turned into real cash via (net income − operating cash flow) / total assets; a higher accrual ratio has historically predicted lower future returns.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
Not applicable to financials; a high ratio during a genuine investment ramp-up isn't necessarily a red flag; a quality signal, not proof of manipulation.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.