quality of earnings


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Quality of earnings

Increased earnings due to increased sales and cost controls, as compared to artificial profits created by inflation of inventory or other asset prices.

Earnings Quality

A condition describing how earnings are recognized. Earnings of high quality are attributable to conservative accounting standards and/or strong cash flows. Low quality earnings come from artificial sources, such as inflation or aggressive accounting. For example, a publicly-traded company may claim strong earnings and consequently have a high stock price. However, the company may have low cash flow from operations and the strong earnings may come mainly from the accounting structures it uses. Therefore, its stock is overvalued. Quality of earnings ratings is subjective, but it does take into account matters such as corporate governance, inventory to sales ratios, and other factors.

quality of earnings

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Most literature surveyed included cash flow from operating activities as an important determinant of quality of earnings.
Knowing and understanding key metrics in a company can lead to better decision-making and reporting, and thus higher quality of earnings.
The independent variables are five-year projects earnings per share growth, investment risk (beta) and quality of earnings (cash flow from operations2net income).
The new product leverages Gradient's experience in forensic accounting to evaluate the quality of earnings, corporate governance and valuation parameters of selected firms in developed and developing countries.
Such changes do not improve the quality of earnings if they provide substantively different accounting results for the same instrument and exposure.
The goals are to recommence dividend payment as soon as prudent, to deliver above average capital growth and sustain above average price/earnings ratios, to strengthen the balance sheet and continually to enhance the quality of earnings.
NEW YORK -- Major publicly-traded Chinese companies whose American Depository Shares (ADSs) are traded on the New York Stock Exchange (NYSE) have very poor quality of earnings, inadequate corporate governance standards, and serious accounting related issues, according to a comprehensive study by RateFinancials, Inc.
Following is a list of AICPA InfoBytes modules in the Quality of Earnings theme.
The focus: benchmarking the quality of earnings statements, a major topic at a time when analysts and investors have taken issue with many earnings announcements.
The upgrade reflects the impact on quality of earnings of continuing improvements in Enron's operations.
Willetts' primary areas of expertise include analyzing quality of earnings, evaluating cash flows in terms of key business drivers, structuring transactions, accounting for mergers and acquisitions, assessing SEC reporting requirements, critiquing valuation models, and reviewing purchase agreements.

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