CFA CFA Level 2 Accruals Ratio

Accruals Ratio

  • This topic has 1 reply, 2 voices, and was last updated Oct-18 by googs1484.
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  • ctownballer03
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    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? 

    googs1484
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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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