Accrual ratio

Accruals scaled by average net operating assets, measured from the change in net operating assets or as net income minus operating and investing cash flow. Higher ratios suggest less persistent earnings.

Where you will meet it

Accrual ratio appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain why earnings revert to the mean and how accruals change how quickly they do so
  CFA Level II · Financial Statement Analysis

  “The balance sheet accrual ratio is the change in net operating assets divided by average net operating assets.”

• Judge the quality of a company's earnings
  CFA Level II · Financial Statement Analysis

  “Compute accrual ratios on the balance sheet and cash flow bases and track them over time; compare revenue growth with growth in receivables and deferred revenue.”

See also

Net operating assets

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

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