Fiance question | Business & Finance homework help
The Quality of Earnings Ratio (QER) measures the sustainability of a company’s earnings. Specifically, it is calculated by dividing a company’s cash flow from operating activities by its net income. You can use it to evaluate companies across industries or time periods for one company. Higher ratios indicate that more earnings are generated from operations, and less is derived from non-recurring sources. This gives you more certainty about future sustainability. Kabutell’s quality of earnings ratio is likely dependent upon their financial performance/cash flows over time as well as other external factors outside their control such as market conditions and competitor activity.
Though QER can provide insight into how reliable a business’s profits may be, it should not be considered in isolation when making investment decisions but rather alongside several other metrics such as price/earnings ratios , debt levels etc determine whether certain stock presents long term value addition portfolio.
Furthermore, understanding the nature of transactions within books will help you understand how they work.