Earnings quality serves as an indispensable barometer for the sustainability, accuracy, and informativeness of reported earnings. In this article, we delve into the intricacies of earnings quality and unravel its intricate relationship with pivotal financial measures like profitability and free cash flow.

This article ventures into a discussion about the numerous factors that shape earnings quality, from systematic external influencers such as industry nuances and economic conditions to internal firm-specific elements including the business model and management decisions. Understand the motives behind earnings management and how it subtly affects a company’s financial narrative.

In the end, this article also dissects various methods of earnings management like accruals and real earnings management, broadening your knowledge about these strategic financial practices. We conclude with a case of key indicators to gauge earnings quality effectively, spotlighting concepts like accruals and working capital turnover ratios. Embark on this comprehensive journey to master the concept of earnings quality and its far-reaching implications.”


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Ziyu (Nelson) Qiao, Portfolio Research Analyst, Connect with Nelson on LinkedIn

Vince (Qijun) Chen, Director of Research, Connect with Vince on LinkedIn