Aggregate Accruals Ratio better, telling, actually

svgleeson

What is the ratio actually telling us? Lower is better from my understanding.

sameeragarwal

Lower the better for both ratios.

Basically its reported income minus cash actually collected. A huge amount of Income with no cash coming in is a cause for concern.

senlinlang

Thanks. Would it be correct to say that a higher AA ratio could be cause for concern because it allows for mgmt to manipulate earnings more so?

mengxu

Yes, the section talks about Cash being more persistent(trustworthy) and the accrual section more likely to reverse in the future. So low depreciation expense to increase earning early on will eventually reverse in the end.