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Cash Accruals Screen 30 Qualifying in UK

This screen is loosely based on the influential work of Richard Sloan from the University of Michigan, published in 1996 documenting what is referred to as the “accrual anomaly”. A pound of earnings can be comprised of assumed non-cash earnings called “accruals.” His landmark 1996 paper revealed that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones His paper found that investors focus too heavily on earnings and not on cash generation. They value the earnings of a high accrual company just as highly as the same earnings of a low accrual company, even though the high accrual company’s earnings are more likely to reverse in future years. When future earnings reverse, investors are “surprised” and sell off the stock causing the stock price to decline. Similarly, when a low accrual company’s earnings accelerate in future years, they are surprised in a good way. To learn more about this strategy please click here »

Your Next Great Stock: How to Screen the Market for Tomorrow's Top Performers

by Jack Hough

Jack Hough highlighted this apporach in his excellent book, "Your Next Great Stock" (see link above). It is based on a 1996 University of Michigan study by Richard Sloan that found that buying companies with negative accruals and shorting negative accruals outperformed the market overall by 10% from 1962 to 1991. A subsequent study in 2006, "Cash Flows, Accruals and Future Returns" found that an accrual-based strategy beat the market by more than 9% a year.

This screen is based on a UK dataset. It uses the following criteria:

  • Mkt Cap £m > 150
  • OCF > Net Profit before Extraords
  • OCF PS > 0
  • EPS > 0
  • EPS 3y CAGR % > 15
  • EPS Gwth % > EPS 3y CAGR %
  • P/E < Median
  • Industry Group not in Collective Investments,

Results are sorted by:

  • Accrual Ratio in ascending order


And limited to the first 30 Results


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Cash Accruals Screen Graphical History in

Returns

Timeframe Screen Returns FTSE 100 Outperformance
1 week -0.12% 0.73% -0.9%
1 month -2.12% -0.44% -1.7%
3 months -4.74% 2.57% -7.3%
6 months 0.14% -0.57% 0.7%
1 year 14.29% 2.48% 11.8%
2 years 62.26% 20.23% 42.0%
Since inception 79.97% 26.6% 53.4%
Annualised 25.30%

Risk

Maximum Drawdown-15.08%
Average No. of Holdings10.5
Diversification LevelModerate

 Chart based on an equal weighted portfolio of max 25 stocks rebalanced quarterly. Qualifying shares below updated daily. Past performance not indicative of future returns.


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Limited to 30 out of 30 total in

Ticker Name Mkt Cap £m OCF Net Profit before Extraords OCF PS EPS 3y CAGR % EPS Gwth % P/E Accrual Ratio Sector
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Can't see the share you expect? View this screen as a checklist to find out why.

You should consider the results of any screening process, including this one, as candidates for further research, not as a buy list. Screening helps to narrow a search based on pre-defined criteria. It is not a substitute for independent research reflecting your individual criteria for investing/trading. Please note that the screening criteria used represents Stockopedia's interpretation of the author's investment approach and are not determined or endorsed by the original strategist.