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Ratios: Quality of Earnings Ratio definitions

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  • Quality of Earnings Ratio
    Comparison of net cash flow from operating activities to net income, used to assess the reliability of reported profits.
  • Net Income
    Amount of profit remaining after all expenses, taxes, and costs are subtracted from total revenue.
  • Cash Flow from Operations
    Cash generated by a company's core business activities, excluding investing and financing transactions.
  • Accrual Accounting
    Accounting method where revenues and expenses are recorded when earned or incurred, not when cash is exchanged.
  • Earnings Quality
    Degree to which reported income reflects actual, sustainable business performance and cash generation.
  • Earnings Management
    Deliberate actions by management to influence reported earnings, often to present a more favorable financial picture.
  • Channel Stuffing
    Practice of pushing excess products to distributors near period-end to inflate sales figures temporarily.
  • Statement of Cash Flows
    Financial report detailing cash inflows and outflows from operating, investing, and financing activities.
  • Operating Activities
    Day-to-day business functions that generate revenue and incur expenses, forming the core of cash flow analysis.
  • Investing Activities
    Transactions involving the purchase or sale of long-term assets like equipment, land, or securities.
  • Financing Activities
    Transactions with creditors and investors, such as issuing stock, borrowing, or repaying debt.
  • Accounts Receivable
    Amounts owed to a company by customers for goods or services delivered but not yet paid for.
  • Transparency
    Clarity and openness in financial reporting, allowing stakeholders to understand how figures are derived.
  • One-Time Gains
    Nonrecurring profits from unusual events, such as asset sales, that can temporarily boost reported earnings.
  • Profitability Ratio
    Metric used to evaluate a company's ability to generate earnings relative to revenue, assets, or equity.