Accrual ratio

The gap between reported profit and cash flow, scaled by assets. It puts a number on how much of a company's earnings exists only as an accounting entry.

One usable form is net profit minus operating cash flow, divided by average total assets. A manufacturer earning ₹615 crore with ₹785 crore of operating cash flow on ₹6,200 crore of assets scores minus 2.7%, meaning cash exceeded profit. That is the healthy direction.

The academic finding behind the measure is sturdy and has held up across markets: firms with high accruals tend to underperform firms with low accruals over the following year or two, because accruals reverse. It is a screening tool rather than a verdict. A high ratio at a company building a genuinely new plant means something quite different from the same number at a company whose receivables just jumped.

Rank a sector by it, then read the outliers by hand.

Accruals reverse. That is the whole finding.