PostHeaderIcon Understanding Quality Earnings In Trading

Stock Earnings AnalysisOne of the main factors that traders and investors alike look for in stocks is their capacity to earn. High quality earnings in stocks make them attractive in the market. It can also get quite complicated to determine since companies can state earnings is a variety of ways. Traders and investors should be able to determine how it affects a certain stock and if it is an accurate measure of how certain stocks may perform in the market.

Quantity And Quality Earnings

Quantity earnings is usually what gets the attention of most people at the initial stage it is also the type of earnings that get the most attention during quarterly reporting periods. One of the reasons is that the higher the earnings quantity, the better a certain stock may be perceived. Earnings quantity is usually reflected as the actual cents per share being delivered by a certain stock.  

Quality earnings on the other hand refers to hoe those earnings are being made rather than the quantity that they offer at a certain period of time. For savvy investors, looking at quality earnings is more important as a more effective gauge for better stocks. They can show how certain stocks may perform in the future.

Identifying Quality Earnings

Quality earnings can only be identified with careful analysis. It is not something that can be determined by looking at the stock price and the amount of increase. Quality earnings can be identified by carefully looking into the financial reports and determining how company earnings are being made. The earnings are then evaluated by the following questions:

Are they repeatable?

Some stocks may reflect quantity earnings that may only happen at a single instance. Quality earnings are those that can be repeated over several quarters.

Can they be controlled?

Quality earnings are based on factors that a company can control. There are instances such as inflation and foreign exchange rates that may provide a boost in quantity earnings. But it is something that a company does not have any control of.

Are the earnings bankable?

Some companies may reflect earnings as revenue that they have not as of yet received. This can actually provide a boost in quantity earnings of a company for a certain quarter. But there are certain factors that may happen that can change this just as easily. Clients may fail to provide the revenue that has already been reported which can cause a discrepancy between the reported earnings and the actual one.


Leave a Reply