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Educational Development Corp (NAS:EDUC)
Sloan Ratio
0.04 (As of Aug. 2014)

Richard Sloan from the University of Michigan was first to document what is referred to as the "accrual anomaly". His 1996 paper found that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones.

Educational Development Corp's Sloan Ratio for the quarter that ended in Aug. 2014 was 0.04.

Educational Development Corp has a Sloan Ratio of 0.04, indicating the company is in the safe zone and there is no funny business with accruals.


Definition

Earnings contain a lot of non cash earnings which is called accruals. The Sloan ratio is a way to identify firms with low non-cash or accrual-derived earnings relative to their cash flow.

Educational Development Corp's Sloan Ratio for the fiscal year that ended in Feb. 2014 is calculated as

Sloan Ratio=(Net Income (A: Feb. 2014 )-Cash Flow from Operations (A: Feb. 2014 )
-Cash Flow from Investing (A: Feb. 2014 ))/Total Assets (A: Feb. 2014 )
=(0.358-2.765
--0.078)/16.758
=-0.14

Educational Development Corp's Sloan Ratio for the quarter that ended in Aug. 2014 is calculated as

Sloan Ratio=(Net Income (TTM)-Cash Flow from Operations (TTM})
-Cash Flow from Investing (TTM))/Total Assets (Q: Aug. 2014 )
=(0.471--0.124
--0.148)/19.287
=0.04

Educational Development Corp's Net Income for the trailing twelve months (TTM) ended in Aug. 2014 was 0.548 (Nov. 2013 ) + -0.313 (Feb. 2014 ) + 0.24 (May. 2014 ) + -0.004 (Aug. 2014 ) = $0.47 Mil.
Educational Development Corp's Cash Flow from Operations for the trailing twelve months (TTM) ended in Aug. 2014 was 1.293 (Nov. 2013 ) + 1.012 (Feb. 2014 ) + -0.484 (May. 2014 ) + -1.945 (Aug. 2014 ) = $-0.12 Mil.
Educational Development Corp's Cash Flow from Investing for the trailing twelve months (TTM) ended in Aug. 2014 was -0.014 (Nov. 2013 ) + -0.02 (Feb. 2014 ) + -0.087 (May. 2014 ) + -0.027 (Aug. 2014 ) = $-0.15 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Explanation

A former University of Michigan researcher, Richard Sloan's 1996 paper found that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones. In fact, for the 40-year period between 1962 and 2001, buying the lowest accrual companies and shorting the highest accrual companies resulted in an average annual compounded return of 18%, more than double the S&P 500's 7.4% annual return over the same period.

According to How to Beat the Market with the Sloan Ratio:

If the Sloan Ratio is between -10% and 10%, the company is in the safe zone and there is no funny business with accruals.

If the Sloan Ratio is less than between -25% and -10% on the negative side, and between 10% and 25% on the positive side, this is a warning stage of accrual build up.

If the Sloan Ratio is less than -25% or greater than 25%, and this ratio is consistent over several quarters or even years, be careful. Earnings are highly likely to be made up of accruals.

Educational Development Corp has a Sloan Ratio of 0.04, indicating the company is in the safe zone and there is no funny business with accruals.


Related Terms

Net Income, Cash Flow from Operations, Cash Flow from Investing, Total Assets


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Educational Development Corp Annual Data

Feb05Feb06Feb07Feb08Feb09Feb10Feb11Feb12Feb13Feb14
sloanratio -0.070.070.000.00-0.070.08-0.090.050.02-0.14

Educational Development Corp Quarterly Data

May12Aug12Nov12Feb13May13Aug13Nov13Feb14May14Aug14
sloanratio 0.030.050.040.020.00-0.02-0.05-0.14-0.030.04
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