What does the term 'Quality of Earnings (QoE)' assess?

The term 'Quality of Earnings (QoE)' specifically assesses the accuracy and sustainability of a company's earnings. This concept is crucial for investors and analysts who are looking to evaluate the true performance and financial health of a business beyond just the reported profit numbers.

QoE involves taking a closer look at how earnings are generated, ensuring that they are not artificially inflated or derived from non-recurring events. A high-quality earnings report means that the earnings are stable, sustainable, and reflective of the company's core operations. This assessment helps potential investors understand if the income reported is likely to continue in future periods, thereby providing insights into the company's ability to generate cash flow and maintain profitability over time.