Percent Operating Accruals

Percent Accruals was presented by University of Michigan academics Hafzalla, Lundholm and Van Winkle. In their paper, they showed that by building a model based on accruals scaled by earnings instead of by total assets (Sloan ratio), they got much higher returns.

Another interesting finding was that the lowest decile of percent accruals was composed of different firms which were 3 times larger and much better performing than the lowest decile of traditional accruals, based on either operating or total accruals.


Percent Operating Accruals = ( Net Income - Cash Flow from Operations ) Net Income