Earnings Quality

Earnings quality refers to how accurately and reliably a company's reported profits reflect its true financial performance. High-quality earnings are derived from sustainable, recurring business activities and are less influenced by accounting tricks or one-time events. When earnings are of high quality, they give investors a clear, trustworthy picture of the company's ongoing profitability and financial health. Conversely, low-quality earnings may be inflated or manipulated, making it harder to assess the company’s genuine performance and potential risks.