Accrual Ratio (Balance Sheet)

Accrual Ratio (Balance Sheet) =  (Noa - Noa previous year) / ((Noa + Noa previous year) / 2)

Net operating assets (Noa) = (Total assets – Cash) - (Total liabilities – Total debt)

The ratio tells you what the change in net operating assets are compared to the average net operating assets over the past two years.

Thus an increase in sales and or earnings accompanied by an increase in the accruals ratio should raise a red flag as it may mean that cash for the sales were not received.

And you should also be careful of a higher than industry-average growth rate in sales and or profitability with a higher than industry-average accruals ratio.