Profit is an opinion, cash is a fact: the accrual check measures whether reported profits are backed by real money, automated across the entire market.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
Once enough history is available, the backtest chart for this strategy will appear here.
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. Above the upper threshold: a high match with the profile.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
The Sloan ratio compares book profit with actual cash flows: the core question of earnings quality.
Below −10% excellent (+2), −10 to +10% healthy (+1), from +10% the warning zone begins.
High accruals historically reverse: aggressive bookings are followed by weak subsequent years.
Values above +25% point to pulled-forward revenues or deferred costs: extreme danger (−3).
For fundamental investors as a quality filter over any earnings-based strategy: a low P/E is worthless if the "E" in it is mere bookwork. Particularly valuable before buying after strong earnings jumps.
The accrual anomaly is one of the most robust findings in accounting research: Richard Sloan showed in 1996 that investors fixate on reported net income ("earnings fixation") and overlook how much of it is mere bookwork. Accruals (non-cash profit components such as pulled-forward revenues or deferred costs) reverse over time. The Sloan ratio measures their share: (net income − operating cash flow − investing cash flow) relative to total assets. Strongly negative values mean overflowing tills with an accounting-wise understated profit; values above +25% signal extreme danger: manipulation or impending write-downs.
The Sloan ratio is calculated as (net income − operating cash flow − investing cash flow) divided by average total assets. A value below −10% means excellent cash coverage (+2): the company really earns more than the income statement shows, typical with high non-cash depreciation. The zone from −10 to +10% counts as healthy (+1).
From +10% the warning level begins (−1): a growing share of profit is not covered by payments. Above +25% extreme danger prevails (−3): such values arise from aggressive receivables booking, pulled-forward revenues or costs pushed into the future. The upper threshold is 1 point (small caps: 2); without a computable Sloan ratio the classification stays neutral in the middle.
Sloan ratio < −10%: excellent cash coverage, cash flow clearly exceeds book profit (+2).
−10 to +10%: healthy zone, profit and cash flows match (+1).
+10 to +25%: warning level, high share of book profits (−1).
≥ +25%: extreme danger, indication of manipulation or impending write-downs (−3).
The strength: the check is a pure cash-flow reconciliation and thus hard to dress up: whoever pulls revenues forward cannot book the missing cash flow into existence. As a cross-check for any earnings-based metric (P/E, ROE, EPS growth) it exposes when their foundation wobbles. The StockScorer Score uses exactly this check as a knockout gate.
Limits: single years can be distorted by legitimate one-offs (acquisitions, large projects, working-capital build-up before expansion); a high value is a prompt to investigate, not a verdict. The strategy also measures quality only, not valuation or growth; it unfolds its value above all in combination.
For sceptical fundamental investors who want to cross-check earnings quality systematically, as a filter over watchlists, before adding to positions, and over any strategy built on reported profits.