AdvancedMAD Academy0:44Fundamentals

Are the Profits Real?

Quality of earnings asks whether reported profit is backed by cash and likely to repeat — two questions the income statement never answers.

0:44 · 6 scenes

This lesson is part of a MAD Academy plan.

What the Lesson Covers

  1. 0:00Two companies report the same profit. One of them is telling the truth.
  2. 0:05The two tests. Is the profit backed by cash, and would it happen again next year?
  3. 0:14The accruals check. Profit minus operating cash flow. A large, growing gap is the warning.
  4. 0:23Where the gap comes from. Usually receivables or inventory building up faster than sales.
  5. 0:31What it is not. A gap is a question, not an accusation. Fast growth creates one honestly.
  6. 0:39Compare profit with cash, then go and find out why they differ.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Are the Profits Real? — MAD Academy Training Video · MadStockAlerts