Can anyone offer any deeper insight into the BS accruals calculation? I could just memorize the formula but I'd prefer to understand it.I guess I just don't understand how the change in net operating assets tells us what amount of accruals are in our earnings. The equation just isn't painting a picture for me.Any advice?

It is basically just looking at the change in your working capital accounts; A/R, A/P, deferred taxes, accrued expenses/revenues. A larger change in A/R than A/P would mean your building up profits that you have not received cash for yet. Low quality earnings.

A CFA Level 2 Discussion About Accruals Ratio

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  06 Oct 2018 at 8:02 pm
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  It is basically just looking at the change in your working capital accounts; A/R, A/P, deferred taxes, accrued expenses/revenues. A larger change in A/R than A/P would mean your building up profits that you have not received cash for yet. Low quality earnings.
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