Low Accruals Model

Earnings can be manipulated through bad accounting practices, but it's harder to do the same for actual cash. This makes it important to consider the growth in cash generated by a company's operations rather than just its profit growth.

• This smallcase shortlists companies whose cash from operations is higher than net profit. Such companies will be able to better handle adverse changes in factors affecting the business.
• Also, such companies are less likely to post negative earnings surprises in such scenarios
• Growth in cash from operations being in line with net profit growth indicates that this net profit growth is sustainable
• Additionally, only the companies experiencing high earnings growth are included in the smallcase