About Quality of Earnings Ratio Calculator (Formula)
The Quality of Earnings Ratio Calculator is a tool used to assess the reliability and sustainability of a company’s earnings. The quality of earnings ratio measures the proportion of cash generated from operating activities in relation to the reported net income.
The formula used in the Quality of Earnings Ratio Calculator is as follows:
Quality of Earnings Ratio (QER) = Net Cash from Operating Activities (NCO) / Net Income (NI)
In this formula:
- Net Cash from Operating Activities (NCO) represents the cash generated by a company’s core operations.
- Net Income (NI) refers to the reported net income or profit of the company.
By inputting the values of net cash from operating activities and net income into the Quality of Earnings Ratio Calculator, users can calculate the quality of earnings ratio. The resulting ratio provides insights into how much of the reported net income is supported by actual cash flow from operating activities.
A higher quality of earnings ratio indicates that a larger proportion of the reported net income is derived from actual cash flow, suggesting a more sustainable and reliable earnings performance. This ratio is commonly used by investors, analysts, and financial professionals to evaluate the financial health and integrity of a company’s earnings.