I am doing my research earnings management.
i found two different methods to compute total accruals.
1. Total Accrual =(deltaCA - deltaCL - deltacash +deltashorttermdebt - Dep)/Total Assets
2. Total Accrual= Net profit - Net Cash from Operating Activities.
when I use first method, i am getting negative total accruals for most of the companies, because depreciation is usually high.
second method is simple and clear.
Can I depend on second method.
thanks in advance
i would say, there are two methods, either you use the cash flow statement or the balance sheet, personally i would opt for BS:
Total Accrual =(deltaCA - deltaCL - deltacash +deltashorttermdebt - Dep)/Total Assets
The Cash flows method is measured by Net operating profit – cash flow from operations
thank you prof. Harit Satt and Prof. Hussaini Bala for your reply to my query
the first method is not logic in calculating the total accruals , so go the simple one . it is very logic
Sloan, (1996) decomposed the earnings into two components, cash flow from operating activities and accruals (OCF)
Earnings= OCF+ Total Accruals ---- this equation can be like this :
Total accruals =Earnings - OCF
I highly trust this formula and I use it in calculating Total Accruals
Hussaini Bala or anyone else who could answer. please if i may ask just to be clear. About the second method, is it
Net Profit/Income - Net cash flow from operations or
Operating Profit - Net cash flow from operations????
hello
i would ask about do you have different results between two methods?
or the same?