Fiance question | Business & Finance homework help
The Quality of Earnings Ratio (QER) measures the sustainability of a company’s earnings. Specifically, it is calculated by dividing a company’s cash flow from operating activities by its net income. It can be used to compare different companies within an industry or over time for one particular firm. A higher ratio suggests that more of the earning are derived from actual operations and less from non-recurring sources, thus offering more assurance on future sustainable earnings. Kabutell’s quality of earnings ratio is likely dependent upon their financial performance/cash flows over time as well as other external factors outside their control such as market conditions and competitor activity.
Though QER can provide insight into how reliable a business’s profits may be, it should not be considered in isolation when making investment decisions but rather alongside several other metrics such as price/earnings ratios , debt levels etc determine whether certain stock presents long term value addition portfolio.
Additionally understanding precise nature underlying transactions within books better grasping why numbers appear way they do uncover any potential discrepancies hinting instances creative accounting occur order yield desired results investors.
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