Glossary · reference sheet · Fundamentals
Earnings Quality Checklist
Red flags and green lights in reported numbers.
Red flags
- Revenue↑, OCF flatCash not following profit — accrual gap widening.
- Receivables racingA/R growing much faster than revenue = aggressive recognition risk.
- Perpetual one-timers"Non-recurring" charges every year.
- Adjusted-GAAP gap wideningManagement framing drifting further from GAAP.
- Inventory buildInventory outpacing sales — demand or obsolescence risk.
Green lights
- FCF conversion >95%FCF ÷ net income near 1 — profits are cash-backed.
- Stable/rising gross marginPricing power holding vs. peers.
- ROIC > WACCGrowth creates value.
- Clean footnotesFew adjustments, conservative estimates.
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Learn content is for education only — not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk. Examples are simplified and historical patterns never guarantee future results.