Hyperinflation

Earnings Quality: An Important Indicator

I would like to add one thing. Earnings quality should ( in my opinion) have high return on tangible capital. Personally I take EBIT from the financial statements an subtract what the marginal tax rate should be for the company (depending on the country). In this way you avoid tax deferrals as well as interest payments which are not part of a companies actual operation. In terms of tangible capital I take Net PPE + Inventories + Depreciation (from the statement of cash flows) So for example lets take Potash.

EBIT: 4.1 Billion
Net PPE = 5.2 Billion + Inventories 700m + Depreciation 320m = Net Tangible Assets of 6.2 Billion or so.
Therefore Pre-tax Return on Tangible Capital = 66%, which is not to shabby. Of course there are caveats such a high growth (in which case you can use a forward PTROTC. It is also use measuring this against their peers. Just another tool in the toolbox