Accruals Ratio
Calculate the accruals ratios: the part of earnings that is not backed by cash, relative to the average of the total assets at the start and the end of the year. Richard Sloan showed that earnings driven by accruals are less persistent than cash earnings and that companies with high accruals earn lower future returns (the accrual anomaly).
- Balance Sheet Accruals Ratio = [(ΔCurrent Assets - ΔCash) - (ΔCurrent Liabilities - ΔShort-term Debt - ΔTaxes Payable) - Depreciation] / Average Total Assets
- Cash Flow Accruals Ratio = (Net Income - Cash Flow from Operations - Cash Flow from Investing) / Average Total Assets
The balance sheet version is Sloan’s (1996). The cash flow version, earnings minus free cash flow, takes the accruals from the cash flow statement instead: Hribar and Collins (2002) showed that balance sheet changes misstate accruals when a company acquires, divests or discontinues operations (their own measure is earnings before extraordinary items minus cash flow from operations), and subtracting the investing cash flow as well counts the investment in long-term operating assets as an accrual, as the broad accruals of Richardson, Sloan, Soliman and Tuna (2005) do. Values near zero or negative are a sign of high earnings quality.
For more information, see the following papers:
- Sloan, R.G. (1996). “Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?” The Accounting Review, 71(3), 289-315.
- Hribar, P. and Collins, D.W. (2002). “Errors in Estimating Accruals: Implications for Empirical Research.” Journal of Accounting Research, 40(1), 105-134.
- Richardson, S.A., Sloan, R.G., Soliman, M.T. and Tuna, I. (2005). “Accrual Reliability, Earnings Persistence and Stock Prices.” Journal of Accounting and Economics, 39(3), 437-485.
Also known as: Sloan ratio, accrual ratio, earnings quality ratio.
Accruals Ratio in Python or via the MCP
Install the Finance Toolkit with:
pip install financetoolkit -U
Then call get_accruals_ratio as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(
["AAPL", "MSFT"],
api_key="FINANCIAL_MODELING_PREP_KEY",
start_date="2021-01-01",
end_date="2025-12-31",
)
toolkit.models.get_accruals_ratio()
Or, after setting up the Finance Toolkit MCP, ask:
What were the balance sheet and cash flow accruals ratios of Apple and Microsoft from 2021 to 2025?
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| (‘AAPL’, ‘Balance Sheet Accruals Ratio’) | -0.1047 | -0.0446 | -0.0115 | -0.0285 | -0.108 |
| (‘AAPL’, ‘Cash Flow Accruals Ratio’) | 0.0154 | 0 | -0.0489 | -0.0765 | -0.0405 |
| (‘MSFT’, ‘Balance Sheet Accruals Ratio’) | -0.0687 | -0.1109 | -0.0683 | -0.1017 | -0.0735 |
| (‘MSFT’, ‘Cash Flow Accruals Ratio’) | 0.0381 | 0.0401 | 0.0192 | 0.144 | 0.0677 |
Parameters
get_accruals_ratio accepts the following parameters.
| Parameter | Type | Description | Example |
|---|---|---|---|
trailing | int | None | Sum the flows over this many periods (e.g. 4 quarters, a trailing twelve months) and compare with the values trailing periods back, so that with quarterly data every change is year over year. Balance sheet items are taken at the period end. Defaults to None, which is 4 for quarterly data (a year) and 1 otherwise; pass 1 for quarterly data to compare quarter over quarter. | 4 |
rounding | int | None | The number of decimals to round the results to. Defaults to None, which uses the Toolkit’s rounding. | 2 |
show_columns | list[str] | None | The periods to show. Defaults to None, all periods. | None, all periods |