Earnings quality

Whether reported performance is sustainable and real, as opposed to whether it was reported faithfully. The two are separate questions and the second comes first.

Where you will meet it

Earnings quality appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Set out the range of quality in financial reporting
  CFA Level I · Financial Statement Analysis

  “Reporting quality and earnings quality are distinct.”

• Judge the quality of a company's earnings
  CFA Level II · Financial Statement Analysis

  “Evaluating earnings quality means testing reported profit against cash and against economics.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with E · Glossary