$FORTY today’s announcement of annual report gives a picture of the firm’s past year performance. The stated profits include earnings collected (cash flows) and those not yet collected (accruals). Accruals are thus the firm’s forecast of future benefits. See the image below. The forecast, in any case, isn't great and as a rule has mistakes. Sometimes, companies may increase accruals to inflate profits. As such, high accruals may be a signal of low future income. Based on this, whereas two firms report the same earnings, the one with higher accruals would perform worse next period.