Definitions for "Quality of earnings"
Increased earnings due to increased sales and cost controls, as compared to artificial profits created by inflation of inventory or other asset prices.
A concept measuring how much the profits companies publicly report diverge from true operating earnings.
Stockmarket analysts often refer to quality of earnings. Housebuilders' shares, for example, are typically on low multiples of price to earnings because they are so dependent on rising house prices. Much of the profit reported by a housebuilder is a capital gain from the rising value of the land on which he is building his houses. If house prices/ land values stop rising, these arguably exceptional profits may come to an end or even turn into losses. By contrast, a company like Unilever, which sells products regarded as necessities by many people, has high-quality earnings and a much higher PE Ratio.