Earnings Quality: Conclusion
  1. Earnings Quality: Introduction
  2. Earnings Quality: Understanding Accounting Standards
  3. Earnings Quality: Defining "Good Quality"
  4. Earnings Quality: Why Aren't All Earnings Equal?
  5. Earnings Quality: Reviewing Non-Accrual Items
  6. Earnings Quality: Measuring Accruals
  7. Earnings Quality: Adjusting Accruals For Proper Comparisons
  8. Earnings Quality: Analyzing Specific Accrual Accounts
  9. Earnings Quality: Investigating The Financing Of Accruals
  10. Earnings Quality: Measuring The Discretionary Portion Of Accruals
  11. Earnings Quality: Conclusion

Earnings Quality: Conclusion

By Tim Keefe,CFA (Contact Author | Biography)

A firm's reported earnings number has typically been the focus of Wall Street, Main Street and the media. Other aspects of financial statements get overlooked, even though these items may provide information about the quality of firms' reported earnings. This tutorial describes a process that will assist you in determining to what degree the reported earnings have been manipulated by management. The results of the analysis won't deliver a definitive thumbs-up or thumbs-down regarding the quality of earnings, but it will enable you to better understand the risks in the firm's accounting for earnings.
Here, we've examined key issues relating to earnings quality, including the attributes of a high-quality earnings number and the tradeoff between relevance and reliability. The discussion noted that earnings quality will vary even when managers follow GAAP with the best intentions. Furthermore, not every change in accounting policy and accruals signals an attempt to manipulate reported earnings.

In order to determine the degree of earnings quality, investors must look at factors outside the financial reporting system that can affect earnings quality. Investors must also identify the types of accounts companies are most likely to manage and the circumstances in which earnings management is most likely to occur. Finally, investors can use metrics to quantify the degree of earnings management and some methods used to compare these metrics over time and across firms.


  1. Earnings Quality: Introduction
  2. Earnings Quality: Understanding Accounting Standards
  3. Earnings Quality: Defining "Good Quality"
  4. Earnings Quality: Why Aren't All Earnings Equal?
  5. Earnings Quality: Reviewing Non-Accrual Items
  6. Earnings Quality: Measuring Accruals
  7. Earnings Quality: Adjusting Accruals For Proper Comparisons
  8. Earnings Quality: Analyzing Specific Accrual Accounts
  9. Earnings Quality: Investigating The Financing Of Accruals
  10. Earnings Quality: Measuring The Discretionary Portion Of Accruals
  11. Earnings Quality: Conclusion
RELATED TERMS
  1. Accounting Earnings

    The amount of money a company has earned during a given period, ...
  2. Quality Of Earnings

    The amount of earnings attributable to higher sales or lower ...
  3. Quality Management

    The act of overseeing all activities and tasks needed to maintain ...
  4. Earnings Management

    The use of accounting techniques to produce financial reports ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. ...
  6. Earnings Call

    A conference call between the management of a public company, ...
RELATED FAQS
  1. What is earnings management?

    Before diving into what earnings management is, it is important to have a solid understanding of what we mean when we refer ... Read Answer >>
  2. When is earnings season?

    Earnings season is the period of time during which a large number of publicly traded companies release their quarterly earning ... Read Answer >>
  3. How can I access a company's earnings report?

    Find out how to access the quarterly and annual earnings reports for publicly traded companies, and even how to listen in ... Read Answer >>
  4. Is maximizing stock price the same thing as maximizing profit?

    Simply put: yes. A company's stock price will factor in many different variables including the type of industry the firm ... Read Answer >>
  5. Why would my stock's value decline despite good news being released?

    More often than not, when a firm releases an earnings report the market will react to this news by adjusting the firm's stock ... Read Answer >>
  6. What can I learn about a company by studying its earnings report?

    Find out how to review an earnings report by looking for key information about cash flow and margins, and discover the importance ... Read Answer >>

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