Which one of the following is used as an indicator that a firm has good-quality earnings?
A)declining price-earnings ratios
B)constant price-earnings ratios
C)cash flows per share that exceed earnings per share
D)earnings per share that exceed cash flow per share
E)positive earnings per share

Question

Quizplus · Accepted Answer

Cash flows per share that exceed earnings per share indicate that the firm has good-quality earnings because it suggests that the company's earnings are backed by actual cash flow and not just accounting tricks or manipulation. Declining or constant price-earnings ratios do not necessarily indicate good-quality earnings as they can be influenced by other factors such as market sentiment. Simply having positive earnings per share or earnings per share that exceed cash flow per share does not necessarily indicate good-quality earnings as it could still be influenced by other factors such as one-time gains or losses.

Which One of the Following Is Used as an Indicator