earnings quality

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.

earnings quality

The extent to which a firm's reported earnings accurately reflect income for that period. Firms using conservative accounting practices tend to penalize current earnings and are said to have high earnings quality. At least over the short run, the earnings reported by a firm are as much a function of its accounting methods as they are a measure of its business success. Also called quality of earnings. See also inventory profit.
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Dividend: pay-out ratio target increased to 55-60% of operating EPS by 2020, underpinned by improved earnings quality and cash flows from Aviva's businesses which are becoming less capital-intensive.
With the shares trading at a 24 per cent discount to historical 12 mth fwd P/B levels BofA Merrill Lynch believes they fail to reflect the improved outlook, its earnings quality and competitively advantaged position in the KSA.
Our findings show that the corporate governance effectively improves the earnings quality and value of the firm, which approves the monitoring role.
Sheikh Faisal: Our emphasis is earnings quality generated from our core operations, and through ensuring consistent delivery of excellent customer service experience.
The results of the research confirm our prediction, revealing that IFRS increases the effectiveness of corporate board, measured by its ability to improve earnings quality, in the French context.
The earnings quality is measured by four separate accounting-based earnings attributes: accruals quality, earnings persistence, earnings predictability; earnings and is also examined by testing the relationship between discretionary accruals as a measure of earnings management, being opportunistic or efficient earnings management.
There are adverse consequences of poor earnings quality, including an increased cost of capital because of lower price-earnings ratios, negative attitudes of analysts who follow the company, and effects on bid-ask spreads.
Gray (1988) argues that national culture, as a key informal institutional factor (North 1990, 1994, 2005), also influences accounting measurement practices thus impacting earnings quality differentially across countries.
We maintain preference for high earnings quality and growth plays, where our top picks include LUCK, DGKC, KOHC, ENGRO, EFERT, HUBC, HBL, UBL, POL, PPL, ICI, APL and NRL.
We view earnings quality and diversification as the strongest drivers for IU's ratings, supported by a disciplined and integrated risk management.
The lower accruals are expected to enhance the earnings quality and persistency.