PSX Clarity
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Glossary · PSX term

Earnings quality.

Earnings quality describes how reliably reported profit reflects real, repeatable cash generation.

Definition

High-quality earnings are backed by cash and recurring operations, while low-quality earnings lean on one-off gains, aggressive accruals, or accounting choices. Investors check cash flow and the source of profits to judge quality.

Worked example

A profit boosted mainly by a one-time asset sale is lower quality than the same profit from core operations.

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