Which of the following statements regarding high quality earnings is true?
A)High quality earnings are strongly correlated to past earnings.
B)High quality earnings contain a lot of transitory items.
C)High quality earnings are primarily composed of permanent items.
D)High quality earnings are those that increase over the prior period.

Question

Quizplus · Accepted Answer

High quality earnings are primarily composed of permanent items, which are sustainable and repeatable in the future. Low quality earnings, on the other hand, contain a lot of transitory items and are not sustainable in the long term. Earnings that are strongly correlated to past earnings may not necessarily be high quality as they could be the result of accounting manipulation or other factors. Similarly, earnings that increase over the prior period may not necessarily be high quality if they are not composed of sustainable, permanent items.

Which of the Following Statements Regarding High Quality Earnings Is