Duplicate

Cash Accruals Screen 30 Qualifying

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 outlines this apporach in his excellent book, "Your Next Great Stock" (see link above). He cites the performance of the AAII equivalent screen, Value on the Move - this has seen a 13.6% return since inception (vs. 1.1% for the S&P 500).

This screen uses the following criteria:

  • Mkt Cap £m > 150
  • OCF > 1 * Net Profit before Extraords
  • OCF PS > 0
  • EPS > 0
  • EPS 3y CAGR % > 15
  • EPS Gwth % > 1 * EPS 3y CAGR %
  • P/E < Median P/E
  • Industry Group not in (Collective Investments)

Results are sorted by:

  • Accrual Ratio in ascending order


And limited to the first 30 Results


Can these rules be improved? Submit a suggestion »
Want to make your own version? Create a Duplicate

Performance Tracking


Returns FTSE 100
1 week -0.0% -1.6% -4.3% 1.0% -6.3% -2.8% 1.3% 1.0%
1 month -9.0% -2.9% -7.0% -1.3% -5.4% -1.1% -0.8% -2.7%
3 months -14.2% -4.7% -19.0% -7.1% -18.3% -6.8% 0.9% -6.3%
6 months -20.2% -12.3% -20.1% -22.8% -20.3% -21.2% -8.0% -11.9%
1 year -16.4% -4.9% -19.1% -35.9% -16.9% -14.1% 2.3% -8.1%
2 years -13.7% 6.1% -14.2% 135.5% -7.5% 8.2% 0.2% -1.5%
Annualised 5.2% 7.9% 4.9% 43.9% -1.6% 10.5% 7.9%
 
Risks
Max Drawdown -41.1% -21.5% -28.6% -46.9% -22.9% -24.8% -18.9%
Avg Holdings 11.4 23.7 23.6 7.9 7.5 25 8.2
Diversification Moderate Good Good Low Low Good Moderate