quality of earnings


Also found in: Acronyms.

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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An advisory firm will examine your financials and quality of earnings. Advisers will anticipate potential buyer concerns and identify potential issues to address.
The biggest red flags are asset quality, quality of earnings and corporate governance, none of which can be fixed overnight.
However, the quality of earnings figures for the collapsed companies' managers has not dominant importance while they are in the critical condition.
Briefly define the term "quality of earnings." How might the accounting for and disclosure of gift card breakage affect the quality of earnings reported by a particular firm?
These worries are driving investors into government bond markets, and condemning equities to a frustrating market trading range, regardless of the quality of earnings they produce.
"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, in a statement.
Quality of earnings growth was strong as operating profit increased 13% for the quarter and 11% for the fiscal year behind sales growth and operating margin improvement.
"It also demonstrates a significant improvement in the margins and quality of earnings within the operating businesses.
Liquidity is not expected to deteriorate materially, despite an increased appetite for lending." The ratings could be raised if profitability and quality of earnings further improve in a sustainable way, along with business diversification and expansion; if sufficient evidence exists that legal risk has been irreversibly removed; and if the funding mix becomes better balanced.
The SEC and the investing public are demanding greater assurance about the quality of earnings. Analysts need a more suitable basis for earnings estimates.
Results of the study indicate that the Q Test is a reliable measure of quality of earnings reported by publicly held companies.
Ryan argues that you want to understand the quality of earnings, adding he's "amazed that in today's world, not enough people look at cash." While it's not the only thing to look at, he says it verifies, in some ways, the quality of earnings.

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