Accruals

[JeffO15]

For the Balance Sheet approach for Accruals I know the forumla is Change is NOI/Avg NOI
The formula excludes cash and mkt securities but can I just think of accruals as use of cash vs. addition of cash to figure out if accruals increase in decrease?
So an increase in payables decrease the AR ratio and a decrease increases it. At the same time an increase in inventory increases the ratio and a decrease, decreases it.
It is a short cut to just think how those accounts effect(affect?) cash, but still remember actual cash is excluded?
Maybe I am over complicating it.

 

[krokodilizm]

JeffO15 wrote:
So an increase in payables decrease the AR ratio and a decrease increases it.

Wait, how did you come to this conclusion? Increase in AP is not related to AR. It’s not like the flow is to and from these two accounts.
Also, you should not confuse NOI with NOA… Accruals is Δ NOA/avg NOA.
This is called balance sheet accruals ratio. There is also cash flow accruals ratio which is (NI-CFO-CFI)/avg NOA.
I don’t see a reason to complicate any further given that these two relationships are already complex considering that they have to be extracted from a set of financial data and they require some adjustments like you mentioned.

 

[JeffO15]

Sorry for confusing the two. I see what you are saying