Quality of earnings
Also called: earnings quality
How far a company's reported profit reflects real, repeatable cash generation from its ordinary business.
High-quality earnings come from the core business, turn into cash over time and rest on cautious accounting. Weak earnings quality shows up as profit that rarely becomes cash, reliance on one-off gains, aggressive revenue recognition, capitalised running costs or changes in estimates that raise profit.
Learn more in these lessons
- Quality of earningsHow can you tell whether a company's reported profit is reliable?
- Financial red flagsWhat warning signs in a company's accounts should make you look harder?
- Accounting manipulation and fraud indicatorsHow are company accounts manipulated, and can outsiders spot it?
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