Earnings Quality Scorecard
A 10-item plain-English checklist for how much to trust a company's reported earnings. Score each item Yes, Partial, or No.
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How to read this score
Each item is worth up to 2 points (Yes = 2, Partial = 1, No = 0), for a maximum of 20. A high score means the reported earnings look mostly organic, cash-backed, and consistent. A low score doesn't prove anything is wrong — it flags where to look closer in the actual filings.
Worked example
Say a company scores Yes on 7 items, Partial on 2, and No on 1 (its share count has been quietly rising).
A 16 lands just inside the high-quality band, but the single "No" on share count is worth flagging on its own — a good total score doesn't cancel out one specific red flag, it just means the rest of the picture is solid.
Common mistakes
- Scoring from impression instead of the filing. Each item is meant to be checked against the actual cash flow statement, share count history, and footnotes — not a general sense that "the company seems fine."
- Treating a mixed score (11-15) as a sell signal. It's a flag to read the filing more closely, not a verdict — plenty of mixed-scoring companies have a specific, explainable reason for one or two weak items.
- Letting a high total bury one bad item. A single "No" on cash-from-operations tracking net income is often more informative on its own than the aggregate 20-point score.
- Scoring once and never revisiting it. Guidance consistency and margin stability (items 4 and 9) only show up by comparing quarter to quarter, not from a single filing in isolation.
Common questions
What is earnings quality?
Earnings quality describes how well a company's reported profit reflects real, sustainable, cash-backed performance rather than accounting choices, one-time items, or timing that flatter the number.
How is this earnings quality score calculated?
This worksheet scores ten plain-English checks as Yes, Partial, or No, worth 2, 1, or 0 points each, for a maximum of 20. It is a starting checklist, not a financial model.
What counts as a high earnings quality score?
On this worksheet, 16 to 20 is treated as high quality, 11 to 15 as mixed, and 0 to 10 as weak or worth investigating further using primary filings.
Go deeper
This worksheet is a starting point. The Earnings Quality Analyzer runs the same idea against a company's actual filings.
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