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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The authors have proposed a uniform, independent definition of quality of earnings that allows for the development of an Earnings Quality Assessment (EQA) model.
The authors assert that there is a need for a measure in accounting that can be used to accurately assess the quality of earnings reported by public companies on financial statements.
Larger discretionary accruals indicate a tendency to manage earnings, thus suggesting a lower quality of earnings.
In this paper, we argue that quality of earnings can serve as a productive framing device and a unifying theme in curriculum design and learning in Intermediate Financial Accounting, and that such a construct has several desirable pedagogical features.
This is why we consider this subject so important that we are featuring a special report in this CPA Letter on Quality of Earnings, to communicate to all our members on their role in this process, whether they are part of the preparer, auditor, regulatory, government or academic communities.
Those perceptions included poor quality of earnings, cumbersome debt load and accounting issues, he said.
Greene King said retail sales had moved into positive territory and the aim now was to drive the enlarged estate forward and improve the quality of earnings.
Consistent with Gradient's scoring of firms in its existing suite of quantitative models, EQM-I scores range from 10 to 1, with higher scores indicating a higher quality of earnings.
Travellers is confident in its ability to deliver sustainable growth, and shall continue to focus on delivering quality of earnings to its shareholders through the top line growth in revenues and expense management leading to continued expansion in its EBITDA (earnings before interest taxes, depreciation and amortization) and net income," Sian added.
Analysis of key red flags at individual banks shows that the most worrying are asset quality, quality of earnings and corporate governance.
The review will focus on the company's operating and strategic direction as well as the quality of earnings, ongoing industry pressures (notably regarding Commercial payors) and liquidity.
In order to sharpen Shuaa's quality of earnings going forward, we have taken decisive steps to improve the balance sheet, significantly increase liquidity and eliminate further downside risks emanating from non-fee-generating businesses,' said Shuaa's chief executive, Sameer al Ansari.

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