Ratios: Quality of Earnings Ratio definitions Flashcards
Ratios: Quality of Earnings Ratio definitions
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Quality of Earnings Ratio Comparison of net cash flow from operating activities to net income, used to assess the reliability of reported profits. Net Income Amount of profit remaining after all expenses, taxes, and costs are subtracted from total revenue. Cash Flow from Operations Cash generated by a company's core business activities, excluding investing and financing transactions. Accrual Accounting Accounting method where revenues and expenses are recorded when earned or incurred, not when cash is exchanged. Earnings Quality Degree to which reported income reflects actual, sustainable business performance and cash generation. Earnings Management Deliberate actions by management to influence reported earnings, often to present a more favorable financial picture. Channel Stuffing Practice of pushing excess products to distributors near period-end to inflate sales figures temporarily. Statement of Cash Flows Financial report detailing cash inflows and outflows from operating, investing, and financing activities. Operating Activities Day-to-day business functions that generate revenue and incur expenses, forming the core of cash flow analysis. Investing Activities Transactions involving the purchase or sale of long-term assets like equipment, land, or securities. Financing Activities Transactions with creditors and investors, such as issuing stock, borrowing, or repaying debt. Accounts Receivable Amounts owed to a company by customers for goods or services delivered but not yet paid for. Transparency Clarity and openness in financial reporting, allowing stakeholders to understand how figures are derived. One-Time Gains Nonrecurring profits from unusual events, such as asset sales, that can temporarily boost reported earnings. Profitability Ratio Metric used to evaluate a company's ability to generate earnings relative to revenue, assets, or equity.