A Common Woman

Earnings Quality: Why It's So Important Now and Which Stocks Are Suspect

I like the idea of trying to get behind the numbers. As a former manager of construction loans, I can tell you that any commercial contractor who hits his projected numbers to the penny is lying. I don't see why people imagine that large companies, with multiple projects, should hit their numbers either. However, this analysis seems too simple. If what we are looking at is the difference between net income and net operating assets, not including cash, then a change in EQ can be a sign of acquiring bargains, of refinancing, of investment in research and development, or of a company that is thick in …cash!