Accruals come in due to CFO and CFI. How - see below:
But if you look at CFO -> you have Working capital changes
Accounts receivable - provision for doubtful accounts muck up the deal - in the sense that could be manipulated to provide different results. Also credit terms + close linkage to unearned revenue cause the necessity to look at year-on-year changes in AR. Revenue is accounted for in your Net Income.
Inventory: Inventory obsolescence thro' an account may cause year-on-year changes in the account - which may all not be in COGS (accounted for in your Net Income)
+ classificaion.
AP - changes in payables terms cause changes in your AP balances, which may overstate / understate your COGS/expenses.
CFI - what goes in there? Capital Expenditure. If this is only PP&E - it is good.
But company could choose to capitalize expenses - which would increase CFI.
So if you took your Net income figure and removed your CFO and CFI - what you are left with is the total impact of accruals on net income.
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on a side note - same is being done on your balance sheet accruals as well.
NOA = (Total assets - Cash) - (total Liabs - Debt)
so you are looking at change in NOA - between periods - which means you are picking up the impact of Accruals in total Assets and total Liabs.
CP作者: former 时间: 2011-7-13 16:30 标题: Accruals Ratio
Why is the formula for accruals:
Net Income - CFO - CFI?
are the accruals considered financing i.e. CFF?作者: kickthatcfa 时间: 2011-7-13 16:30
well done cpk.作者: tobeornottobe 时间: 2011-7-13 16:30
Gazhoo, the formula is: NI - (CFO + CFI).......you had cfo - cfi in your original post作者: Houjichasan 时间: 2011-7-13 16:30
To keep a straight head on this use it like NI - (CFO + CFI)...otherwise, you might mess up on the signs.作者: Swanand 时间: 2011-7-13 16:30
simple way to think of it...accruals are not captured in CFO and CFI but may be in reflected in net income. So to "flush" them out use the formula
