Page 108 - FINAL CFA II SLIDES JUNE 2019 DAY 5.2

Figure 19.14 contains the necessary data to READING 19: INTEGRATION OF FINANCIAL STATEMENT ANALYSIS TECHNIQUES
calculate the accruals ratio using both approaches

MODULE 19.5: EARNINGS QUALITY AND CASH FLOW ANALYSIS

Using the data contained in Figure 19.14, we can calculate the balance sheet and
cash flow statement accruals ratios in Figure 19.15.
Figure 19.15: Balance Sheet and Cash Flow Accruals Ratios

Under the balance sheet approach, the accruals ratio has fluctuated
widely over the period, from 17.3%, down to 8.2% in 2015, and back up
to 16.6%. Wide fluctuations like these may be an indication of earnings
manipulation.

Equally disturbing, the accruals ratio calculated using the cash flow
approach has steadily increased over the last three years from 5.6% in
2014 to 19.7% in 2016.