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Cash Accruals Screen 17 Qualifying in UK

Cash Accruals is a quality investing strategy inspired by research into the 'accrual anomaly' by American accounting professor Richard Sloan. In company accounts, accruals are adjustments made when revenues have been booked but cash has not yet been received. This screen uses low levels of accruals as a positive quality signal. It looks for companies with a low accrual ratio, where free cash flow is higher than net income and where earnings-per-share is growing. Professor Sloan's research found that: "...firms with relatively high levels of accruals experience negative future abnormal stock returns that are concentrated around future earnings announcements." The research found that companies with small or negative accruals vastly outperform (+10%) those with large accruals. It concluded that investors focus too heavily on earnings and not on cash generation and that the share prices of companies with high accruals are more likely to reverse in future years. To learn more about this strategy please click here »

This is an independent study based upon the methods of...
Picture of Richard Sloan

Richard Sloan

Professor of Accounting, University of California (Berkeley). Amongst other research (e.g. R&D), he first identified the Accrual Anomaly.

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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Performance Tracking


Returns FTSE 100
1 week -1.2% -1.8% 0.6% -0.3%
1 month -2.0% -3.3% -2.9% -1.7%
3 months 6.1% 5.7% 9.5% 0.2%
6 months 16.5% 8.1% 16.5% 3.2%
1 year 13.9% 4.8% - 2.0%
2 years 29.2% 29.7% - 4.4%
Annualised 24.2% 14.8% 29.4%
 
Risks
Max Drawdown -15.1% -12.9% -11.7%
Avg Holdings 12 23.8 25
Diversification Moderate Good Good

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



Please subscribe to see the companies that qualify for this independent study of the Cash Accruals Screen Strategy.
Plans start from as little as 25 per month. 14 day FREE TRIAL available.

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.



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