Quality of Earnings

Quality of earnings is an assessment (which can be quite subjective) about a company’s earnings based on a number of factors, including to what extent they are recurring or based on non-recurring or one-off streams. Analysts and investors use quality of earnings assessments to gauge what future earnings might look like. An investor might conclude that for otherwise equal earnings between two companies, the better investment proposition is the one that generates recurring revenue from core operating activities rather than the one that generates earnings from asset sales, or tax and accounting benefits.