analyzing-earnings-quality
Installation
SKILL.md
Analyzing Earnings Quality
When To Use
- Evaluating a company's reported earnings before making buy/sell/hold recommendations
- Screening for accounting anomalies or aggressive revenue recognition in a portfolio or watchlist
- Conducting due diligence on an acquisition target's financial statements
- Comparing earnings quality across peer companies in an industry sector
- Investigating divergences between reported net income and operating cash flow
Inputs To Gather
- Income statement (3-5 years minimum): Revenue, COGS, operating expenses, non-recurring items, net income
- Cash flow statement (matching period): CFO, capex, working capital changes, stock-based compensation
- Balance sheet (matching period): Total assets, receivables, inventory, payables, accrued liabilities, deferred revenue
- Notes to financials: Revenue recognition policies, changes in accounting estimates, related-party transactions
- Audit opinion and any restatements: Qualified opinions, material weaknesses, prior-period adjustments
- Sector context: Industry-typical accrual levels, seasonal patterns, capital intensity