Earnings Expert, LLC

Quality of Earnings Analysis

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Earnings Expert, LLC

Earnings Expert produces qualitative research with a focus on in-depth industry knowledge. We have developed peer comparisons for selected industry groups across a broad array of metrics both quantitative and qualitative. This analysis allows investors to rank the risk profile of companies within the peer group.

Our approach is designed to arrive at a qualitative assessment of the “tone at the top” or said another way: is management trustworthy? The research specifically addresses:

  • Earnings quality and aggressiveness of accounting – does the company’s selection of accounting policies result in an economically accurate representation in the financial statements? Do the company’s results of operations and financial position appear better than their competitors because of the choice of accounting policies? Where are important earnings quality related disclosures either missing, or deficient relative to peer companies?
  • Business model deficiencies – where does the business model result in disproportionate risk relative to peers. Are risks clearly and adequately disclosed?
  • Market and segment analysis – how does the company stack up against peers? Geographic sales, credits, subsidies and tariffs by country are discussed.
  • Governance & management quality – is the composition of the board, relative to peers, sufficient to facilitate risk management and assure high quality financial reporting?  What governance issues could affect the reliability of reported financial results?
  • Related parties – is disclosure adequate such that an investor can assess if management and board members are acting as appropriate fiduciaries?
  • Internal control – based on the auditors testing, are controls sufficient such that investors should reasonably rely on the financial statements? When deficiencies arise are they addresses appropriately and in a timely manner?
  • Risk management – are risks either disproportionate to the business model, to those which competitors are taking, and are risks adequately disclosed.
  • Key performance indicators - we identify non-financial measures and track the quality and consistency of disclosure in comparison to peers.
We believe a detailed review of company history and actions taken by the company will be indicative of future performance. Our analysis encompasses performance over the past eight quarters in comparison to peers. We assess whether the company performed better or worse than peers when presented with similar problems and opportunities.

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