The accruals signal measures how much of a company's reported earnings came from accounting estimates instead of cash. High-accrual earnings tend to reverse the following year — receivables uncollected, inventory written down — so high-accrual stocks systematically underperform. Sloan 1996 documented a 10% annual return spread between low- and high-accrual deciles.
Sloan 1996: investors fixate on reported earnings without distinguishing the cash component from the accrual component. Firms with high accruals (lots of "earnings" that haven't turned into cash yet) systematically underperform. We compute working-capital accruals scaled by total assets — high accruals = bearish signal. This factor is INVERTED in scoring (lower accruals = higher score).