Earnings quality is the ability of net income to report the true underlying performance of the company.

Question

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Earnings quality refers to the reliability and accuracy of a company's reported net income in reflecting the actual economic activity and financial performance of the company. This includes factors such as the consistency of reported earnings over time, the transparency of financial reporting, the use of appropriate accounting methods, and the absence of manipulation or fraudulent activity. High earnings quality is important for investors and other stakeholders in making informed decisions about the company's financial health and future prospects.

Earnings Quality Is the Ability of Net Income to Report