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.
Mentioned in ?
References in periodicals archive ?
"The shares are attractively positioned to benefit from increasing infrastructure investment as well as from management's continuing focus on driving further earnings quality," said Peel Hunt.
Reportedly, this divestment is a part of GiG's strategy to increase brand equity for Rizk.Com in the casino category in select markets, in order to improve earnings quality and margins, through increased customer engagement and loyalty.
Tech stocks continue to move higher, despite deteriorating earnings quality.
By considering the level of firms' accruals as one of the measures of accounting information quality, the findings of this study are in line with the studies that have shown a deterioration in earnings quality in crisis periods (Iatridis & Dimitras, 2013; Persakis & Iatridis, 2015; Tahinakis, 2014; Trombetta & Imperatore, 2014), since Borio (2014) reports that financial crises are generally accompanied by the recession phase of the business cycle.
Prior studies have documented that IFRS restricts earnings management, improves accounting earnings quality, and is useful for investors in making their investment decisions (Barth et al.
If operating cash flow is greater than the reported earnings, it means the company has a high earnings quality that may merit a premium on valuation.
Under this plan, Commercial Bank's vision is to be the 'Best Bank in Qatar' recognised for its five Cs: corporate earnings quality, client experience, creativity and innovation, culture, and compliance.
Analyzing the latest quarterly results for PSO, HASCOL and SHEL, analysts find a deteriorating free-cash flow situation with outflows from networking capital and additional borrowing underpin a relatively weak earnings quality picture.
Its Group CEO Joseph Abraham identified three C's to help the bank achieve its objective " corporate earnings quality, client experience, creativity and innovation, culture, and compliance.
It added that, "we believe BDO's earnings quality is higher than other banks given that a larger portion of its revenues are generated from recurring income."
This prudence treatment supports the findings of Ball and Shivakumar (2005) that accounting conservatism is commonly considered an indicator of earnings quality or at least a desirable property of accounting earnings.
Considering that earnings quality can reduce the asymmetry of information and that information asymmetry can enable inefficient investment decisions, the following question arises: does the quality of financial information influence the efficiency of investment decisions?