Quality of Earnings Definitions
Quality Earnings (simple definition)
Earning amounts based directly on increased sales and/or decreased costs rather than influenced by generally accepted accounting practices.
Quality of Earnings (not so simple)
The degree to which company profit figures are a measure of the earnings based directly on increased sales and/or decreased costs rather than influenced by a lower tax rate, by fewer shares outstanding, and by generally accepted accounting practices such as slower depreciation and salvage rates; recognition of revenues before actually received; scanty allowances for Accounts Receivable, returned goods, and warranties; capitalization of R&D and interest expense; discontinued operations and extraordinary items ignored; pension funds used to boost earnings.
Quality of Earnings (not simple at all)
From Deloitte & Touche: Integrity and Quality
The quality of earnings can generally be summarized as the degree to which earnings are cash or noncash, recurring or nonrecurring, and based on precise measurement or estimates that are subject to change.
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