Switch to:
Taiwan Semiconductor Manufacturing Co Ltd (NYSE:TSM)
Sloan Ratio
5.33% (As of Jun. 2016)

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.

Taiwan Semiconductor Manufacturing Co Ltd's Sloan Ratio for the quarter that ended in Jun. 2016 was 5.33%.

As of Jun. 2016, Taiwan Semiconductor Manufacturing Co Ltd has a Sloan Ratio of 5.33%, 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.

Taiwan Semiconductor Manufacturing Co Ltd's Sloan Ratio for the fiscal year that ended in Dec. 2014 is calculated as

 Sloan Ratio = (Net Income (A: Dec. 2014 ) - Cash Flow from Operations (A: Dec. 2014 ) - Cash Flow from Investing (A: Dec. 2014 )) / Total Assets (A: Dec. 2014 ) = (8111.19581269 - 13444.9172139 - -9008.08244476) / 47679.8216376 = 7.71%

Taiwan Semiconductor Manufacturing Co Ltd's Sloan Ratio for the quarter that ended in Jun. 2016 is calculated as

 Sloan Ratio = (Net Income (TTM) - Cash Flow from Operations (TTM}) - Cash Flow from Investing (TTM)) / Total Assets (Q: Jun. 2016 ) = (8646.25737952 - 15060.2088423 - -9393.18910274) / 55866.6117647 = 5.33%

Taiwan Semiconductor Manufacturing Co Ltd's Net Income for the trailing twelve months (TTM) ended in Jun. 2016 was 2305.79666049 (Sep. 2015 ) + 2107.75227581 (Dec. 2015 ) + 1987.93070328 (Mar. 2016 ) + 2244.77773994 (Jun. 2016 ) = \$8,646 Mil.
Taiwan Semiconductor Manufacturing Co Ltd's Cash Flow from Operations for the trailing twelve months (TTM) ended in Jun. 2016 was 3616.19978879 (Sep. 2015 ) + 4412.01408945 (Dec. 2015 ) + 3729.32032012 (Mar. 2016 ) + 3302.67464396 (Jun. 2016 ) = \$15,060 Mil.
Taiwan Semiconductor Manufacturing Co Ltd's Cash Flow from Investing for the trailing twelve months (TTM) ended in Jun. 2016 was -1677.02355408 (Sep. 2015 ) + -3085.65432061 (Dec. 2015 ) + -1698.42844167 (Mar. 2016 ) + -2932.08278638 (Jun. 2016 ) = \$-9,393 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.

As of Jun. 2016, Taiwan Semiconductor Manufacturing Co Ltd has a Sloan Ratio of 5.33%, indicating the company is in the safe zone and there is no funny business with accruals.

Related Terms

Historical Data

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

Taiwan Semiconductor Manufacturing Co Ltd Annual Data

 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 sloanratio (%) 7.03 -0.68 -20.31 4.32 18.67 8.93 15.74 9.32 7.71 -0.59

Taiwan Semiconductor Manufacturing Co Ltd Quarterly Data

 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 sloanratio (%) 11.15 9.96 11.54 8.07 1.92 -2.73 -4.24 -0.74 0.40 5.33
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to \$400 per referral. ( Learn More)