A company has a net income of \$600,000 and net cash flow from operating activities of \$540,000. Calculate the quality of earnings ratio and discuss what this indicates about the company's earnings quality.

• A. 1.10; This indicates that the company is generating more cash than its reported income, suggesting high earnings quality.
• B. 1.00; This indicates perfect alignment between cash flow and income, suggesting high earnings quality.
• C. 0.90; This indicates that the company is generating slightly less cash than its reported income, which may suggest moderate earnings quality.
• D. 0.75; This indicates that the company is generating significantly less cash than its reported income, suggesting very low earnings quality.

Answer: (C)