quality of earnings

Assessment of a company's earnings based on the type of earnings rather than simply the amount. The aim is to determine in the case of reported earnings whether those earnings are the sign of a healthy, prosperous company or whether there are other factors that need consideration. Certain questions can be asked to determine the quality of earnings such as: whether the earnings are repeatable (sales growth is repeatable, cutting costs may be, sales of assets such as buildings or the one-off receipt of fees are probably not); whether earnings are under the company's control (earnings from currency differentials, inflation, or a fall in the cost of a raw materials are not under a company's control and do not improve the quality of earnings); and whether earnings are in cash, or in accounting entries (earnings in cash are rarely given back but entries in accounts that reflect orders made, but not paid for, may fail to materialize).