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Why Earnings Quality Matters


Why Earnings Quality Matters

Several news outlets have talked about the deterioration in the quality of corporate earnings. Most companies report on both a GAAP and Non-GAAP basis. We are seeing many companies (especially technology companies) pay more of their workers in the form of stock compensation, which can enhance reported (Non-GAAP) earnings. The value of a company can be dramatically different between using GAAP earnings and Non-GAAP earnings when measured from a price/earnings ratio standpoint.

Written by

James E. Gore, CFA®, CAIA, CMT®

Jim serves as the Chief Investment Officer of THOR, is a Chartered Financial Analyst charter-holder, a Chartered Alternative Investment Analyst, a Chartered Market Technician, a member of the Association for Investment Management and Research and a member of the Cincinnati Society of Financial Analysts.

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