When considering the quality of a firm's earnings, high quality earnings tend to be
A)cash earnings
B)earnings derived from regularly recurring transactions
C)cash earnings and earnings derived from regularly recurring transactions
D)earnings per share

Question

Quizplus · Accepted Answer

High quality earnings are those that come from reliable and sustainable sources such as cash earnings and earnings derived from regularly recurring transactions. Cash earnings are important because they represent actual cash flow that can be used for dividend payments, reinvestment in the business, and debt repayment. Earnings derived from regularly recurring transactions are also important because they are reliable and predictable, making it easier for investors to estimate future earnings. Earnings per share (EPS) is not a measure of earnings quality as it can be easily manipulated through share buybacks or dilution.

When Considering the Quality of a Firm's Earnings, High Quality