case study on quality of earnings

Quality of Earnings: A Case Study Collection

"Earnings Quality" has been a subject of investigations by regulators in many countries, articles in most, if not all, business publications, and significant debate in recent years. It is a matter of importance in the financial reporting and regulatory communities, and it impacts the confidence of investors in global financial markets. For this reason, the American Institute of CPAs in the U.S. engaged authors and experts to assemble this collection of case studies, to put the reader in the seat of executives making decisions that could impact the future of their company, and their own and their employees' livelihoods.

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Quality of Earnings: A Key Pillar of Financial Due Diligence

Financial due diligence is the process of making sure the price of an asset is in line with its operating performance “under the hood.” Assessing the quality of earnings is one of its key tests: How sustainable is the business’ reported financial performance?

By Saveen Kumar

Saveen is a qualified chartered accountant in the UK with an MBA from the University of Oxford.

Before entering into any transaction with another party, it’s important to do your own financial due diligence to confirm the facts. Are you really getting what you think you’re getting? Or have you found the next Luckin Coffee?

During financial due diligence (FDD), three pieces of analysis are key to determining the right price to pay for the deal:

• Quality of earnings (QofE)
• Net working capital (NWC)

I refer to these tests as the three pillars of financial due diligence . At a high level, we are trying to locate items that relate to the normal course of business, capture material cash flows not captured in financial statements, verify the consistent accounting treatment of items, and ensure that items are recognized in the correct time period.

More often than not, an adjustment in any one of the pillars will impact items in the other two. As a rule of thumb, every balance sheet item related to lines above EBITDA should be part of NWC, while every item removed from QofE and NWC, with any actual cash impact in the current year or in near-term future, should be considered for net debt.

In a series of articles, I will delve deeper into how to perform these tests, starting here with quality of earnings.

Assessing Quality of Earnings in Due Diligence

Quality of earnings answers the salient question of whether a topline or cost line from the current year is from a principal business activity, or is just a one-off. Due diligence practitioners are therefore looking to ascertain what the normal and sustainable level of earnings is so as to ensure the multiple-based price being paid in the transaction is fair.

Of all the analyses in an FDD report, quality of earnings is perhaps the most closely watched, as enterprise value is often driven by FDD-adjusted EBITDA rather than the figure reported by management. A successful $100k reduction to EBITDA would translate to a $1 million reduction in price for a deal going at a 10x EBITDA multiple. Therefore, adjustments normally deemed immaterial are all under scrutiny due to their potential impact on price.

Examples of Quality of Earnings Adjustments

When looking at the types of adjustments that would be made during QofE analysis, the following are the most prominent that I have encountered in my work:

As you can see, there are elements in the table that correspond with the annual race to meet budgeted targets. Yet, when it comes to a transaction, the buyer is, more often than not, only concerned with the ongoing core operation of the business. Hence the need to strip out anything that is not a core component of “business as usual” activity.

Case Study: Fashion Retail

Let’s show the adjustments in action by walking through a case study example for a fashion retailer.

The acquisition target is Fashion X, a small retailer with 10 stores across the region. During the due diligence process , the following factors were determined:

• The company has a December year-end and adheres to IFRS accounting standards.
• 20% increase in EBITDA from last year
• Expected deal value to be 10x EBITDA
• The setup time for stores, from when stores are opened to when they get profitable, is estimated at six months. All setup costs are expensed above EBITDA.

Three stores were opened at end of Sep-18 with the following details:

• One unprofitable store was closed at the end of Jun-19. The total loss of the store and the cost of closure was $100k in FY19. The store lost $10k in FY18.
• Year-end provisions summary shows unused contingency accrual reversed in current year, increasing EBITDA by $100k.

Breaking Down the Case

Due diligence is a forensic exercise where practitioners must parse information and focus on key points that emerge. Here are the key insights drawn from the case data that impact quality of earnings.

1. One-off store setup costs

For any business that can increase revenue by adding a discrete revenue-earning unit (e.g., a restaurant, retail outlet, production unit), it is fairly common for the unit to have a one-time setup cost. Often, these costs, to the extent they are expensed to P&L above EBITDA, are reversed within QofE as they are considered a one-off. In this case, the total setup cost over six months was $20k (10+5+5). Of these six months, three (Oct-Dec) are in FY18 and the other three in FY19 (Jan-Mar), therefore, the cost in FY18 and FY19 are both reduced by $10k.

In a deal, everything eventually boils down to negotiation, nothing is in black and white. If the business is expanding and it is normal to add 2-4 stores a year (i.e., it has been doing it consistently over the last few years), the buyer can argue that these are not one-off costs but are incurred in the normal course of business. This would knock off $100k from the deal price.

2. Six-month loss for new stores

Similar to setup costs, it is fairly common for a new unit to have a “ramp up” time and operate under loss during that time. This could be due to time spent in marketing, getting production to a minimum level, or putting together a successful store team. These initial losses are also reversed within QofE. The total loss over six months from Sep-18 was $100k (50+40+10), therefore, the costs in FY18 and FY19 are both reduced by $50k.

3. Annualized profit for new stores

Even though the retail unit lost money in the first six months of operation, it is an investment in the business that is expected to yield higher revenue, as is demonstrated by the stores being profitable subsequently. QofE numbers are adjusted to reflect this.

4. Loss-making store sale

The business that the buyer will get won’t have the loss-making store. Therefore, the cost incurred and the losses related to the business are reversed (FY19: $100k; FY18: $10k).

5. Contingent consideration timing

Businesses often end up under- or overestimating accruals, which can overflow into next year at year-end. When the actual invoice comes in, the management may need to adjust the accrual, leading to some cost recognition in the wrong period. This is perfectly acceptable from an audit or accounting point of view, but in FDD, we would adjust for it.

Why adjust for previous years when the final price would be based on the current year? This is done to get a better idea about the underlying growth story. Note that while the underlying earnings of the business are better than reported, the adjusted earnings grew only by 1.5%, compared to the 20% reported growth.

Taking the above into account, the quality of earnings table would look like:

As you can see, there are material changes to the “business as usual” figures as a result of the store expansion. The adjusted earnings show an uptick as these costs are added back, which in the resulting negotiations would give consideration toward a higher expected sale price.

A Word of Caution

Financial due diligence is not an audit and will not completely protect you against misinformation and fraud. However, it will make your case stronger and help you to negotiate a better price. On many occasions, deals are done on the basis of a strategic rationale, with FDD being of limited importance in such scenarios.

This walkthrough is intended to give a practical example of why QofE is vital during deal negotiations and how financial due diligence works in practice. In subsequent articles, I will explore net debt and working capital in a similar manner to complete the three pillars.

This should give you some idea about these value drivers in a deals scenario. However, these would need to be adapted to specific needs of a deal or a business, for which it would help to engage specialized consultants to chalk out a custom plan and put your best foot forward in deal negotiation.

Further Reading on the Toptal Blog:

• How Forensic Accounting Can Supercharge Your Financial Risk Analysis

Understanding the basics

What is a good quality of earnings.

Good quality earnings are consistent and transparent numbers that are likely to continue on an ongoing basis. Thus, they are likely to exclude activities related to: discontinued operations, one-off revenues/costs, and items not related to the current year.

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Sample Quality of Earnings Report: A Comprehensive Analysis of Financial Performance

This downloadable is an example of Amplēo’s final deliverable for a quality of earnings report. You will find that the report is broken up into 7 different sections:

• Background, Overview, and Key Findings
• Quality of Earnings
• Financial Statements
• Financial Performance
• Working Capital
• Appendix A: Scope of Procedures
• Appendix B: Supporting Schedules

The report is designed to help investors, analysts, and other financial professionals gain a deeper understanding of the company’s financial health and performance. The example below showcases the level of detail and analysis that can be expected from a quality of earnings report, and how it can be used to make informed investment or strategic decisions.

Although the financial information throughout this report is a completely FAKE (made up) company and the data is not real, nor was it derived from a real company, the example report provides a valuable resource for anyone seeking to understand how a quality of earnings report is structured and what kind of information it can provide.

Download the example report today to learn more about this important financial document and how it can help you make better-informed decisions.

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Quality of Earnings: Definition, Analysis, and Why It's Important

Investopedia / Michela Buttignol

What Is Quality of Earnings?

A company's quality of earnings is revealed by dismissing any anomalies , accounting tricks, or one-time events that may skew the real bottom-line numbers on performance. Once these are removed, the earnings that are derived from higher sales or lower costs can be seen clearly.

Even factors external to the company can affect an evaluation of the quality of earnings. For example, during periods of high inflation, quality of earnings is considered poor for many or most companies. Their sales figures are inflated, too.

In general, earnings that are calculated conservatively are considered more reliable than those calculated by aggressive accounting policies. Quality of earnings can be eroded by accounting practices that hide poor sales or increased business risk .

Fortunately, there are generally accepted accounting principles (GAAP). The more closely a company sticks to those standards, the higher its quality of earnings is likely to be.

Several major financial scandals, including Enron and Worldcom, have been extreme examples of poor earnings quality that misled investors.

Key Takeaways

• A company's real quality of earnings can only be revealed by spotting and removing any anomalies, accounting tricks, or one-time events that skew the numbers.
• Quality of earnings is the percentage of income that is due to higher sales or lower costs. 
• An increase in net income without a corresponding increase in cash flow from operations is a red flag.
• Tracking activity from the income statement through to the balance sheet and cash flow statement is a good way to gauge quality of earnings.

Understanding Quality of Earnings

One number that analysts like to track is  net income . It provides a point of reference for how well the company is doing from an earnings perspective. If net income is higher than it was the previous quarter or year, and if it beats analyst estimates, it's a win for the company.

But how reliable are these earnings numbers? Due to the myriad of  accounting conventions , companies can manipulate earnings numbers up or down to serve their own needs. 

Some companies manipulate earnings downward to reduce the taxes they owe. Others find ways to artificially inflate earnings to make them look better to analysts and investors.

Companies that manipulate their earnings are said to have poor or low earnings quality. Companies that do not manipulate their earnings have a high quality of earnings.This is because as a company's quality of earnings improves, its need to manipulate earnings to portray a certain financial state decreases. However, many companies with high earnings quality will still adjust their financial information to minimize their tax burden.

As noted above, companies with a high quality of earnings stick with the GAAP standards. The fundamental qualities of those standards are reliability and relevance. That is:

• Reliability : The metric is verifiable, free from error or bias, and accurately represents the transaction.
• Relevance : The metric is timely and has predictive power. It can confirm or contradict prior predictions and has value when making new predictions.

How Quality of Earnings Works

There are many ways to gauge the quality of earnings by studying a company's annual report.

Analysts usually start at the top of the income statement and work their way down. For instance, companies that report high sales growth may also show high growth in credit sales. Analysts are wary of sales that are due only to loose credit terms. (Changes in credit sales, or accounts receivable, can be found on the balance sheet and cash flow statement .)

Working down the income statement, analysts then might look for variations between operating cash flow and net income. A company that has a high net income but negative cash flows from operations is achieving those apparent earnings somewhere other than sales.

One-time adjustments to net income, also known as nonrecurring income or expenses, are another red flag. For example, a company may decrease expenses in the current year by refinancing all of its debt into a future balloon payment. This would lower debt expense and increase net income for the current year while pushing the repayment problem down the road. Naturally, long-term investors don't care for that move.

Example of Earnings Manipulation

A company can manipulate popular earnings measures such as earnings per share and price-to-earnings ratio by buying back shares of its own stock, which reduces the number of shares outstanding. In this way, a company with declining net income may be able to post earnings-per-share growth.

When earnings-per-share goes up, the price-to-earnings ratio goes down. That should signal that the stock is undervalued . It doesn't, though, if the company changed the number by simply repurchasing shares.

It is particularly worrisome when a company takes on additional debt to finance stock repurchases. Companies might do this to artificially inflate the per-share price of their stock by reducing the number of shares available for purchase on the open market, thus giving the impression that the value of the stock has increased.

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Demystifying Quality Of Earnings: Unveiling The True Financial Picture

The concept of quality of earnings is crucial for understanding the true financial picture of a company. It goes beyond simply looking at the earnings numbers and delves into the factors that affect the reliability and accuracy of those earnings. By analyzing the quality of earnings, investors and stakeholders can make more informed decisions and gain a deeper understanding of a company’s financial health.

Table of Contents

Brief explanation of the concept of quality of earnings

Quality of earnings refers to the degree to which a company’s reported earnings accurately reflect its underlying financial performance. It focuses on the transparency and reliability of the earnings figures, ensuring that they are not distorted or manipulated to present a misleading picture.

Importance of understanding the true financial picture of a company

Understanding the true financial picture of a company is essential for various reasons. Firstly, it helps investors make informed investment decisions. By assessing the quality of earnings, investors can determine whether a company’s reported earnings are sustainable and reliable, or if they are inflated or artificially manipulated.

Secondly, the quality of earnings is crucial for financial analysis and valuation. Analysts rely on accurate and transparent earnings figures to assess a company’s profitability, growth potential, and overall financial health. Without a clear understanding of the quality of earnings, financial analysis can be flawed and misleading.

Lastly, the quality of earnings is significant for stakeholders, including shareholders and creditors. Shareholders rely on accurate earnings information to assess the company’s performance and make decisions regarding their investments. Creditors, on the other hand, use earnings quality as an indicator of a company’s ability to generate sufficient cash flows to meet its debt obligations.

In conclusion, understanding the quality of earnings is vital for investors, analysts, and stakeholders to make informed decisions, conduct accurate financial analysis, and assess a company’s financial health. In the following sections, we will explore what quality of earnings entails, why it is important, common misconceptions, and tools and techniques for assessing it.

What is Quality of Earnings?

Quality of earnings refers to the degree to which a company’s reported earnings accurately reflect its true financial performance. It is a measure of the reliability and transparency of a company’s financial statements. Understanding the quality of earnings is crucial for investors, analysts, and stakeholders as it provides insights into the financial health and sustainability of a company.

Definition and explanation of quality of earnings

Quality of earnings is a term used to describe the extent to which a company’s reported earnings are a true representation of its underlying financial activities. In other words, it assesses whether the reported earnings are a result of genuine business operations or if they are influenced by accounting manipulations .

To determine the quality of earnings, analysts examine various financial metrics and indicators to assess the accuracy and reliability of a company’s financial statements. This analysis helps in identifying any discrepancies or irregularities that may distort the true financial picture of the company.

Factors that affect the quality of earnings

Several factors can impact the quality of earnings. It is important to consider these factors when evaluating a company’s financial performance. The key factors that affect the quality of earnings are:

Revenue recognition policies : Revenue recognition refers to the process of recording revenue in a company’s financial statements. Different companies may have different policies for recognizing revenue, which can impact the quality of earnings. For example, some companies may recognize revenue too early or too late, leading to an inaccurate representation of their financial performance.

Expense management : The way a company manages its expenses can also affect the quality of earnings. Excessive or inappropriate expenses can artificially inflate or deflate earnings, distorting the true financial position of the company.

Accounting practices : The accounting practices followed by a company can significantly impact the quality of earnings. Companies have some flexibility in making accounting choices, such as depreciation methods or inventory valuation. These choices can have a significant impact on reported earnings and may affect the quality of earnings.

By analyzing these factors, investors and analysts can gain a better understanding of the quality of earnings and make more informed investment decisions.

In conclusion, quality of earnings is a critical aspect of financial analysis. It helps in assessing the reliability and transparency of a company’s financial statements. By understanding the factors that affect the quality of earnings, investors and analysts can make more informed decisions and avoid potential pitfalls.

Why is Quality of Earnings Important?

Quality of earnings is a crucial aspect that investors and financial analysts consider when evaluating a company’s financial health. It provides insights into the true financial picture of a company and helps stakeholders make informed decisions. Let’s explore why quality of earnings is important in more detail.

Impact on Investment Decisions

When making investment decisions, investors rely on the financial information provided by companies. However, if the quality of earnings is poor, it can lead to misleading financial statements. Accurate and reliable earnings information is essential for investors to assess the profitability and growth potential of a company. By understanding the quality of earnings, investors can make more informed investment decisions and mitigate risks.

Influence on Financial Analysis and Valuation

Financial analysis and valuation heavily rely on the quality of earnings. Accurate earnings information allows analysts to assess a company’s financial performance, profitability, and growth prospects. It helps in determining the company’s intrinsic value and making comparisons with industry peers. Misleading or manipulated earnings can distort financial analysis and lead to incorrect valuations, potentially resulting in poor investment decisions.

Significance for Stakeholders

Quality of earnings is significant for various stakeholders, including shareholders and creditors. Shareholders rely on accurate earnings information to assess the company’s financial health and make decisions regarding buying, holding, or selling shares. Creditors, such as banks and lenders, use earnings quality to evaluate a company’s ability to repay loans and meet financial obligations. Poor earnings quality can raise concerns among stakeholders and affect their confidence in the company.

Common Misconceptions about Quality of Earnings

It is essential to address common misconceptions about quality of earnings to avoid making incorrect assumptions. One common misconception is believing that high earnings always indicate a healthy financial position. However, high earnings alone do not guarantee financial stability, as they can be the result of accounting manipulations or unsustainable practices.

Similarly, assuming that low earnings always indicate poor performance is another misconception. Low earnings may be a result of strategic investments or temporary setbacks, which may not reflect the company’s true financial health.

Lastly, overlooking the impact of accounting manipulations on earnings quality is a significant misconception. Companies may employ various accounting practices to manipulate earnings, such as aggressive revenue recognition or inappropriate expense management. These manipulations can distort the quality of earnings and mislead stakeholders.

Unveiling the True Financial Picture

To assess the quality of earnings and unveil the true financial picture of a company, it is crucial to analyze various factors. This includes evaluating revenue recognition policies, examining expense management practices, and evaluating accounting practices.

Analyzing revenue recognition policies involves understanding if revenue is recognized too early or too late. Aggressive revenue recognition can artificially inflate earnings, while delayed recognition can understate earnings. Both scenarios can impact the quality of earnings.

Examining expense management practices helps identify excessive or inappropriate expenses that can affect earnings quality. Companies with poor expense management may have inflated expenses, leading to lower earnings quality.

Evaluating accounting practices involves understanding the impact of accounting choices on earnings. Different accounting methods can have varying effects on earnings quality. Recognizing potential red flags in financial statements, such as inconsistencies or unusual accounting practices, is crucial for assessing earnings quality accurately.

Tools and Techniques for Assessing Quality of Earnings

To assess the quality of earnings effectively, analysts and investors can utilize various tools and techniques. Ratio analysis is one such tool that helps evaluate earnings quality. Key ratios, such as the profit margin ratio and return on equity, provide insights into a company’s profitability and efficiency. Interpreting ratio results can help identify potential issues with earnings quality.

Cash flow analysis is another valuable technique for assessing earnings quality. Cash flow statements provide information about a company’s cash inflows and outflows, helping analysts understand the company’s ability to generate cash. Analyzing cash flow statements can reveal discrepancies between reported earnings and actual cash flow, indicating potential issues with earnings quality.

Understanding the quality of earnings is crucial for investors, financial analysts, and stakeholders. It impacts investment decisions, financial analysis, and valuation. By avoiding common misconceptions and utilizing tools and techniques for assessing earnings quality, stakeholders can make more informed decisions. It is essential to delve deeper into earnings quality to ensure accurate financial analysis and informed decision-making.

When it comes to assessing the financial health of a company, understanding the quality of earnings is crucial. However, there are several common misconceptions that can lead to misinterpretation of a company’s true financial position. Let’s debunk these misconceptions and shed light on the importance of accurately assessing the quality of earnings.

Believing that high earnings always indicate a healthy financial position

One of the most common misconceptions is that high earnings always indicate a healthy financial position. While high earnings can be a positive sign, it is essential to dig deeper and analyze the factors contributing to those earnings. Earnings can be artificially inflated through accounting manipulations , such as aggressive revenue recognition or inappropriate expense management. Therefore, relying solely on high earnings without considering the underlying factors can be misleading.

Assuming that low earnings always indicate poor performance

On the other hand, assuming that low earnings always indicate poor performance is another misconception. Low earnings can be a result of various factors, such as investments in research and development, expansion plans, or economic downturns. It is crucial to consider the context and understand the reasons behind low earnings before making any judgments about a company’s financial health. Low earnings alone do not necessarily indicate poor performance.

Overlooking the impact of accounting manipulations on earnings quality

Accounting manipulations can significantly impact the quality of earnings. Companies may employ various tactics to manipulate their financial statements, such as inflating revenues or understating expenses. These manipulations can create a false impression of a company’s financial health and profitability. It is essential to scrutinize the accounting practices and policies employed by a company to ensure the accuracy and reliability of its earnings.

To unveil the true financial picture, investors and analysts need to look beyond the surface-level earnings numbers and consider the underlying factors that affect the quality of earnings. By doing so, they can make more informed investment decisions and avoid falling prey to common misconceptions.

In conclusion, understanding the quality of earnings is crucial for accurate financial analysis and decision-making. High earnings alone do not always indicate a healthy financial position, and low earnings do not necessarily imply poor performance. It is essential to consider the underlying factors and scrutinize accounting practices to assess the true financial health of a company. By avoiding these common misconceptions, investors and stakeholders can gain a more accurate understanding of a company’s earnings quality and make informed decisions based on reliable financial information.

In order to make informed investment decisions and accurately assess the financial health of a company, it is crucial to unveil the true financial picture by analyzing the quality of earnings. This involves examining various aspects of a company’s financial statements and understanding the impact of revenue recognition policies, expense management practices, and accounting choices on the overall earnings quality.

Analyzing revenue recognition policies

One key aspect of assessing earnings quality is analyzing a company’s revenue recognition policies. Revenue recognition refers to the process of recording revenue in the financial statements. It is important to evaluate whether a company is recognizing revenue too early or too late, as this can have a significant impact on earnings quality.

Recognizing revenue too early can artificially inflate earnings, giving a misleading impression of the company’s financial performance. On the other hand, recognizing revenue too late can result in understated earnings, which may not accurately reflect the company’s true financial position. Aggressive revenue recognition practices can also be a red flag, as they may indicate a company’s willingness to manipulate earnings to meet financial targets.

Examining expense management practices

Another crucial factor in assessing earnings quality is examining a company’s expense management practices. It is important to identify any excessive or inappropriate expenses that may be affecting the company’s earnings. Excessive expenses can indicate poor financial management or inefficiencies within the organization, which can have a negative impact on earnings quality.

Furthermore, it is essential to understand the impact of expense management on earnings quality. Companies that effectively manage their expenses can improve their profitability and enhance the quality of their earnings. On the other hand, companies with poor expense management practices may experience lower earnings quality, as excessive or unnecessary expenses can erode profitability.

Evaluating accounting practices

In addition to revenue recognition policies and expense management practices, evaluating a company’s accounting practices is crucial for unveiling the true financial picture. Accounting choices can significantly impact earnings and financial statements. It is important to understand the impact of these choices on earnings quality.

Different accounting methods can be used to record transactions, and these choices can have varying effects on earnings. For example, a company may choose to use aggressive accounting methods to inflate earnings or conservative methods to understate earnings. Recognizing potential red flags in financial statements, such as unusual accounting choices or inconsistencies, is essential for assessing earnings quality accurately.

By evaluating revenue recognition policies, expense management practices, and accounting choices, investors and analysts can gain insights into the true financial picture of a company. This analysis helps in making informed investment decisions and understanding the overall financial health of the organization.

To assess the quality of earnings effectively, various tools and techniques can be utilized. Two commonly used methods are ratio analysis and cash flow analysis.

Ratio analysis

Ratio analysis involves calculating and interpreting financial ratios to evaluate earnings quality. Key ratios that can be used to assess earnings quality include the profit margin ratio , return on assets ratio , and earnings per share ratio . These ratios provide insights into the profitability, efficiency, and overall financial performance of a company.

Interpreting the results of ratio analysis involves comparing the ratios to industry benchmarks or historical data. Significant deviations from industry norms or previous performance can indicate potential issues with earnings quality.

Cash flow analysis

Cash flow analysis is another valuable tool for assessing earnings quality. Cash flow statements provide insights into the cash generated and used by a company during a specific period. Cash flow from operations is particularly important, as it reflects the cash generated from the core operations of the business.

Analyzing cash flow statements helps in understanding the sustainability of earnings and the company’s ability to generate cash. Positive cash flow from operations indicates healthy earnings quality, while negative or inconsistent cash flow can be a warning sign of potential issues.

By utilizing ratio analysis and cash flow analysis, investors and analysts can gain a comprehensive understanding of a company’s earnings quality and make more informed investment decisions.

In conclusion, unveiling the true financial picture of a company requires a thorough analysis of the quality of earnings. By examining revenue recognition policies, expense management practices, and accounting choices, investors and analysts can gain insights into the accuracy and reliability of a company’s earnings. Additionally, utilizing tools such as ratio analysis and cash flow analysis further enhances the assessment of earnings quality. Understanding the true financial picture is essential for making informed investment decisions and ensuring the long-term success of any investment portfolio.

Assessing the quality of earnings is crucial for gaining a comprehensive understanding of a company’s financial health. By utilizing various tools and techniques, investors and analysts can evaluate the reliability and sustainability of a company’s earnings. In this section, we will explore some of the key tools and techniques used to assess the quality of earnings.

Ratio Analysis

Ratio analysis is a widely used method for evaluating earnings quality. It involves comparing different financial ratios to gain insights into a company’s financial performance. Here are some key ratios that can help assess earnings quality:

Earnings per Share (EPS) : This ratio measures the profitability of a company by dividing its net income by the number of outstanding shares. A consistent and increasing EPS indicates a higher quality of earnings.

Gross Profit Margin : This ratio measures the percentage of revenue that remains after deducting the cost of goods sold. A higher gross profit margin suggests better earnings quality, as it indicates that the company is effectively managing its production costs.

Operating Cash Flow Ratio : This ratio compares a company’s operating cash flow to its net income. A higher ratio indicates that the company’s earnings are backed by strong cash flow, indicating better earnings quality.

Interpreting the results of ratio analysis requires a deep understanding of the industry and the company’s specific circumstances. It is essential to compare the ratios with industry benchmarks and historical data to gain meaningful insights.

Cash Flow Analysis

Cash flow analysis is another valuable tool for assessing earnings quality. It focuses on the cash inflows and outflows of a company, providing insights into its ability to generate and manage cash. Here are some key aspects to consider when analyzing cash flow:

Operating Cash Flow : This represents the cash generated from the company’s core operations. A positive and increasing operating cash flow indicates a higher quality of earnings, as it demonstrates the company’s ability to generate cash from its day-to-day activities.

Investing and Financing Cash Flows : Analyzing the investing and financing activities can provide insights into the company’s capital allocation decisions and its ability to raise funds. A company with a healthy mix of investing and financing activities is more likely to have sustainable earnings.

By examining the cash flow statements, investors can identify any discrepancies between reported earnings and actual cash flow. This analysis helps uncover potential red flags and provides a more accurate assessment of earnings quality.

In addition to ratio analysis and cash flow analysis, other techniques such as trend analysis, benchmarking, and peer comparisons can also be employed to assess earnings quality. These techniques provide a broader perspective and help identify any anomalies or inconsistencies in a company’s financial statements.

It is important to note that assessing earnings quality is not a one-time exercise. It requires continuous monitoring and analysis to stay updated on any changes in a company’s financial performance. Regularly reviewing financial statements, conducting due diligence, and staying informed about industry trends are essential for making informed investment decisions.

In conclusion, understanding the tools and techniques for assessing the quality of earnings is crucial for investors and analysts. By utilizing ratio analysis, cash flow analysis, and other evaluation methods, stakeholders can gain valuable insights into a company’s financial health and make informed decisions. Remember, a thorough assessment of earnings quality is essential for mitigating risks and maximizing returns in the dynamic world of finance.

Case Studies: Examples of Earnings Quality Analysis

In this section, we will explore two case studies that demonstrate the importance of analyzing the quality of earnings in assessing the financial health of a company. By examining the revenue recognition policies, expense management practices, accounting choices, and financial ratios, we can gain valuable insights into the true financial picture of these companies.

Case Study 1: Company X

In the first case study, we will analyze the revenue recognition policies and expense management practices of Company X to evaluate the quality of its earnings.

Analyzing revenue recognition policies and their impact on earnings quality : By closely examining how Company X recognizes revenue, we can determine if they are recognizing it too early or too late. Early recognition of revenue may artificially inflate earnings, while delayed recognition may understate the company’s financial performance. This analysis will provide insights into the accuracy and reliability of the reported earnings.

Assessing expense management practices and their influence on earnings : It is crucial to identify any excessive or inappropriate expenses that may affect the quality of earnings. By scrutinizing the company’s expense management practices, we can determine if there are any red flags indicating potential financial mismanagement or manipulation. This assessment will help us understand the true profitability of Company X.

Case Study 2: Company Y

In the second case study, we will focus on evaluating the accounting practices and interpreting financial ratios and cash flow analysis of Company Y to assess the quality of its earnings.

Evaluating accounting practices and their effect on earnings quality : Understanding the impact of accounting choices on earnings is essential. By examining the company’s accounting policies, such as revenue recognition methods, inventory valuation, and depreciation methods, we can identify any potential discrepancies or aggressive practices that may distort the reported earnings. This analysis will provide insights into the reliability and transparency of Company Y’s financial statements.

Interpreting financial ratios and cash flow analysis for a comprehensive assessment : Financial ratios, such as the profit margin, return on assets, and debt-to-equity ratio, can provide valuable insights into the financial health and earnings quality of a company. By analyzing these ratios in conjunction with the company’s cash flow statements, we can gain a comprehensive understanding of Company Y’s ability to generate cash, manage expenses, and sustain profitability.

By conducting these case studies, we can demonstrate the significance of analyzing the quality of earnings in making informed investment decisions and conducting thorough financial analysis. It is crucial for stakeholders, including shareholders and creditors, to have a clear understanding of a company’s true financial position to mitigate risks and maximize returns.

In conclusion, assessing the quality of earnings is vital for gaining insights into a company’s financial health. By analyzing revenue recognition policies, expense management practices, accounting choices, and financial ratios, we can unveil the true financial picture of a company. The case studies presented in this section highlight the importance of conducting earnings quality analysis and provide readers with practical examples to apply in their own financial analysis. It is encouraged to delve deeper into earnings quality to make informed decisions and ensure the accuracy and reliability of financial information.

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Case Study: Construction Acquisitions Gone Awry – a Quality of Earnings Story

By: Damien Strohmier, Senior Manager, CPA, CCIFP

Failed transactions can happen for a variety of reasons.

This article explains one potential reason for a failure, which is the inherent risk in reporting and understanding a construction company’s accounting transactions in accordance with generally accepted accounting principles (GAAP). This example, while construction-centric, will highlight the importance of accurate accounting records in any transaction or industry.

The contractor in question engaged an accounting firm to perform a Quality of Earnings (QoE) engagement to support the adjusted EBITDA. The contractor maintained the books in QuickBooks and engaged an outside accountant for CFO services.

During the meeting with management and the outside accountant, it was evident the contractor had experienced significant growth in the past several years, demonstrating greater than 10% revenue growth over each of the past five years. The contractor also experienced positive growth in margin and EBITDA over the three-year QoE period. Specifically, EBITDA increased from $1.2 to $2.7 million over the three-year period.

Based on discussions with management, the increases in margin and EBITDA were the result of several factors, including reaching an optimum capacity with the labor crews that were in force, and new and expanded customer relationships that provided logistical improvements for crews in both the installation and monitoring of jobs.

The contractor’s jobs were generally short-term in nature, as they dealt primarily with the residential market. Because of the short-term nature of the jobs, a work-in-process schedule was not created for any closing periods. Furthermore, management believed their billing process, which was driven by the actual completion of installations or receipt of materials, would not produce any significant cut-off issues.

This fact pattern had already directed management’s decisions not to investigate any cut-off issues. Management, under the impression that the most recent $2.7 million EBITDA would be representative of the range of future performance, had already engaged an investment banker to assist with the identification of, and marketing to, potential buyers.

The result: an excited owner thinking about multiples of $2.7 million, a management team ready for a closing bonus, and external investment banker actively seeking buyers in the market. What could go wrong?

The simple procedure of evaluating the margin on all jobs performed and in-process over the QoE period at the cut-off dates provided a different picture of the company’s results. Cut-off errors were experienced across the range of residential work and the limited commercial jobs the contractor performed. The residential job errors, while small in nature at the individual job level, did create a significant cut-off error because each tended to incur cost in one period and not bill until the subsequent period. During periods of growth, this adjustment similarly grew because of the amount of outstanding work at the cut-off periods. Overall, this wasn’t a deal breaker, but did represent an adjustment of nearly 10% to EBITDA in the third year of the QoE period.

Unfortunately, there was a deal breaker, and it was the result of an adjustment related to two commercial contracts. These contracts were started near the end of the first year of the QoE period. The majority of the work under the contracts was completed during the second year of the QoE period, but a work-in-process adjustment was not made to recognize earned revenue on the contract that was consistent with the progress on the contracts. This adjustment resulted in the final bills on the commercial contracts that were issued in the third year – which totaled over $1.1 million – being reclassified to the second year of the QoE period. More than 30% of expected EBITDA, which had been based on the third year of the QoE period, was gone with one adjustment.

Anyone familiar with the income approach of valuing a business also knows this $1.1 million is amplified by the multiple seen in similar transactions in that industry, thus greatly impacting the estimated value of the business. On the lender side, the deal structure will have to be changed to meet the new expected debt service coverage, which means the seller is likely to have to take on a seller note for a larger piece of the transaction.

This example highlights the importance of maintaining accounting records in accordance with GAAP. Owners that may be considering an external sale should evaluate their own accounting records to understand potential adjustments that may exist. A thorough evaluation will provide an accurate starting point for marketing the business for sale and will establish a realistic value at which a transaction could be consummated.

Learn more about QoE:

Case Study: Normalization Adjustments and the COVID-19 Pandemic

Understanding the Need for Quality of Earnings Report in a Transaction

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Quality of Earnings Report: Essential Due Diligence

August 6, 2020   //    Business Consulting    //   By PKF Mueller Solutions

By Christopher Hatten, CPA, CVA, CM&AA, Managing Director

A pickup in middle-market mergers and acquisitions (M&A) work is anticipated once parties become more comfortable with doing more transactions, or with larger parts of them done remotely. Having a detailed quality of earnings report as part of the due diligence process will be key in getting any deal across the finish line.

Although a quality of earnings report is not an audit, it can help provide additional support of a target company’s revenue and expenses, including sustainability and accuracy of past operations. In this article we will advise our readers of five fundamental goals of a quality of earnings engagement.

Complete Interim Financial Statements It is beneficial to note that often times middle-market companies being sold have not had their financial statements audited or reviewed. Some also may not be generating monthly internal financial statements or waiting until year-end to book certain closing entries that should be made monthly or quarterly. In turn, any interim financial statements may be starkly different than what would be included in audited annual financial statements.

Risk Areas and Assessment Periods Identification and due diligence of risk areas is key. In particular, it is essential to assess those areas subject to management estimations, such as the accounts receivable allowance, inventory reserves and accruals. Evaluate whether accruals, such as warranties and bonuses, and allowance accounts are only being made at year-end for financial reporting obligations or as part of a monthly close. Often times, these risk areas are not made on a recurring basis which results in misstated assets and liabilities.

Specifically, the assessment period should cover at least the last two fiscal years and the latest interim period. This will assist in identifying trends in the business, and potentially improper adjustments to these accounts.

Identification and Assessment of Metrics Although it is commonly recognized as a preferred metric, earnings before interest, taxes, depreciation and amortization (EBITDA) – there are limitations in how it fails to address the need for growth reinvestment as a capital-intensive business doesn’t cash-flow as well as others. It is necessary to revisit the EBITDA calculations after the due diligence procedures are finished to further assess management representations and where the figures ultimately settle. However, the quality of earnings procedures could help identify other metrics to take into account as part of the purchase negotiations.

Flow-Through of Owner’s Personal Expenses For closely-held businesses, there will always be adjustments regarding the seller’s activity. Sellers and other key members of management may be taking excess compensation out of the business, which requires certain adjustments or replacements after the transaction closes. There could also be other discretionary bonuses and “unrelated expenses” the owner may be flowing through the business. With that knowledge to consider, it is important for the buyer to thoroughly examine and substantiate these amounts.

Consistent Revenue Recognition Revenue will always be a risk to address and could support an article by itself. Does the seller have good controls around revenue recognition and is it being recognized in accordance with US Generally Accepted Accounting Principles (GAAP)? Understanding the seller’s methodology, even if not in accordance with the accounting rules, will be key in determining whether the policy has been applied on a consistent and rational basis.

Concentrations of customers and seasonality of sales is also important to take into account. With the presence of customer concentrations, the loss of even one customer could significantly disrupt business. You would also want some comfort that sales aren’t being supported by one-off transactions that aren’t indicative of sales on a recurring basis.

Finally, a buyer could be coming in at the slow point of the seller’s business cycle, which in turn, would require assurance that enough cash is left in the business to support operations for an extended period of time, or a cash infusion by the buyer at the time of purchase.

Forewarning When the above matters aren’t given the proper assessment, and a deal is being structured as simply a multiple of revenue or EBITDA, the increase or reduction in the deal size can differ significantly.

Christopher Hatten, CPA, CVA, CM&AA, is a Managing Director at PKF Advisory. He can be reached at (713) 860-5446 or via email at [email protected].

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Managerial Auditing Journal

ISSN : 0268-6902

Article publication date: 1 December 2005

Although the academic research on the quality of earnings has been improved by presenting different approaches of measurement, there is no agreed‐upon generally accepted approach to measure the earning quality. Aims to present results of an empirical study measuring the quality of earnings on companies listed in NYSE.

Design/methodology/approach

Uses a sample of 90 companies listed in the NYSE. The analysis is directed to reach a general assessment of the quality of earnings if there is a complete consistency among the three approaches, and if not, the quality of earnings is questionable and needs further analysis and investigations.

The results show that different approaches of measuring the quality of earning lead to different assessment, and one industry or one company can not be labeled as having low or high quality of earning based on the result of one approach only. The results also suggest that the stakeholders before making any financing, investing decision or taking any corrective action, have to use more than one approach to assess the quality of earnings.

Originality/value

Indicates that financial analysts and governmental agencies dealing with companies should apply more than one measure for the quality of earning in order to have strong evidence about the level of quality before taking any corrective action or making any decision related to those companies.

• Financial analysis
• Measurement

ElMoatasem Abdelghany, K. (2005), "Measuring the quality of earnings", Managerial Auditing Journal , Vol. 20 No. 9, pp. 1001-1015. https://doi.org/10.1108/02686900510625334

Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited

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Earnings Quality

By Deborah Taylor |

 Reviewed By Oliver Sealey |

February 28, 2024

What is “Earnings Quality”?

Earnings quality is a measure of how reliable a company’s earnings are for assessing current and future performance. High earnings quality would usually suggest that the earnings are free from manipulation by management and a good predictor of future performance.

Earnings quality can be measured using several techniques and metrics; there is no single formula to assess quality. However, earnings quality analysis often includes detailed financial statement analysis to identify non-recurring items, significant non-cash items, and a review of balance sheet items that are dependent on management estimates.

Some of the most widely used metrics used to assess earnings quality include the cash conversion ratio and the accruals ratio. The cash conversion ratio is the cash flow generated each year relative to each dollar of earnings. The accruals ratio is the accruals in the balance sheet relative to total operating assets. A low cash conversion ratio and a high accruals ratio is an indicator of low earnings quality whilst a high cash conversion ratio and a low accruals ratio is an indicator of high earnings quality.

Key Learning Points

• Earnings quality is used to determine whether a company’s earnings provide a reliable measure of a company’s current performance and are a good predictor of future performance
• There is no single measure of earnings quality, but the cash conversion ratio and the accruals ratio are widely used metrics. A high cash conversion and a low accruals ratio are indicators of high earnings quality and vice versa
• Earnings quality drives expectations of future cash flow. It is, therefore, a key technique in credit analysis, deal due diligence (M&A and LBOs), and investment research
• Low earnings quality can provide evidence of earnings manipulation by management. It may therefore be used in corporate governance analysis

How is Earnings Quality measured?

There is no single way to assess earnings quality, but it often involves scrutiny of the financial statements to identify the following items which could impact predictions of future earnings and cash flows:

• Non-recurring items of income and expense, such as impairment charges or profits from asset disposals
• Non-cash items of income and expense, such as asset revaluations or provision releases
• Items that are dependent on management estimates, such as inventory valuation or accrued expenditure

In addition to the above, the following cash conversion and accruals ratios can be used as quantitative measures of earnings quality:

Cash conversion = operating cash flow/EBITDA

Accruals Ratio = Net income – Operating cash flow – Investing cash flow/Average(Total assets – Cash & equivalents)

Why is Earnings Quality important?

Earnings quality drives expectations of future earnings and cash flows; low earnings quality will generally result in lower expectations of future earnings and cash flows relative to current earnings. This will impact estimates of debt capacity and company valuation.

Earning quality assessment, therefore, plays a critical role in several areas of financial analysis, including:

• Credit analysis for deal structuring or lending decisions
• Deal diligence for M&A, LBOs and IPOs
• Equity valuation for equity research and bond valuation for credit research

In addition to this, if earnings quality assessment provides evidence that earnings are being manipulated by management, this will raise corporate governance concerns. Therefore, earnings quality can be used as an input in corporate governance analysis.

Below extract from the financial statements for two peer companies. Company A is the established market leader in the industry whilst Company B is a smaller, high-growth competitor. If you’d like to see the workings, or try it yourself, you’ll find the files in the download section on the right of this p age.

Using the information given, we have been asked to calculate the cash conversion ratio and the accruals ratio for Company A and Company B and compare their earnings quality.

We start by calculating the cash conversion ratio for both companies and immediately see that Company B has a much lower cash conversion ratio than Company A:

To calculate the accruals ratio for both companies, we first need to calculate the numerator (net income less operating and investing cash flow) and the denominator (average of total assets less cash & equivalents).

We then calculate the accruals ratio and can see that Company B has a much higher accruals ratio than Company A:

Company B has a lower cash conversion ratio and higher accruals ratio than Company A. This suggests that Company B has lower earnings quality than Company A.

But why might this be a concern to an analyst? If you review the cash flow statement extracts, you can see this is because Company B’s working capital demand is higher than Company A’s, despite Company B being a smaller company. Although this can simply be a result of Company B’s rapid growth, it could raise concerns about deteriorating business performance. For example, it could indicate reduced discipline about the collection of receivables, increased obsolescence of inventory, or that suppliers are tightening their payment terms due to credit concerns.

Download the accompanying Excel files to practice these exercises for yourself.

Conclusion  

The earnings quality of a company is an important indicator of its long term health. It also allows analysts to have greater trust that the numbers they are looking at are meaningful indicators of current and future performance. Understanding how to judge earnings quality is an important skill in a wide range of financial services settings.

Additional Resources

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The Impact of the Audit Quality on that of the Earnings Management: Case Study in Tunisia

Journal of Accounting & Marketing

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Kais Lassoued

In a Tunisian context, the purpose of this research is to study the aspects related to the quality of external audit, relating to the opportunistic management of earnings. Indeed, we are interested in the aspect of handling the earnings as a means for the manager to achieve its objectives by publishing a result different from that which is achieved. Thus, the quality of external audit, as an essential element of the system of government of the companies, may be able to limit the process of accounting manipulation, and therefore to protect the interests of investors and creditors. Given these factors, there is a key question: To what extent can the quality of the external audit influence the opportunistic management of earnings in Tunisian businesses? In this research, our goal is to empirically test a sample of Tunisian companies listed on the stock market, the impact of audit quality on the opportunistic practice of earnings

Sahar Habibi

This research is going to study the effect of auditing quality on earnings management in firms accepted in Tehran Stock Exchange. Three criteria of: audit firm size, industry specialization and auditor's tenure were used to measure auditing quality. Also Jones's adjusted model has been used to calculate earnings management. 73 companies during the time period between 2008 and 2010 were investigated. To test the hypotheses we used linear regression model and difference test and the effects of variables were investigated separately because the overall model test created some co-linearity problems. The findings of the present research show that the results of the annual data and the interim data have been the same and this shows that auditing firm size does not affect earnings management meaningfully but industry specialization and auditor's tenure have had a negative effect on earnings management. Also earnings management in firms audited by big auditors, industry speciali...

International Journal of Business and Emerging Markets

Anis Jarboui , Amel Kouaib

Academic Journal of Accounting and Economic Researches

World of Researches Publication WRP

Accounting profession researchers and practitioners consider earnings as one of the most important criteria for evaluating the performance and determining the value of the company, and they are forced to evaluate the reported earnings by economic units. To assess the earning a concept called quality of earnings is used. This study seeks to investigate the impact of certain factors, including the audit characteristics (size of audit firm, switch of auditors and auditor opinion) on the quality of earnings through the variable of discretionary accruals. In addition, other factors such as control variables of operating leverage, profitability, firm size, and the operational risk were examined. Thus the sample data consisted of 130 participants were collected for a five year period (2008-2013) and using model explanation, three proposed hypotheses in this study were tested. Regression analysis was used to test the hypotheses. The results indicate a significant negative correlation between the size of audit institution and discretionary accruals. This means that there is a negative and significant relationship between the variable of the audit institution size and earnings quality. Also, there is a non-significant positive relationship between the variables of the type of auditor opinion and discretionary accruals. This indicates a non-significant positive relationship between the variables of the type of auditor opinion and earnings quality. Finally, there is a negative and non-significant correlation between the variable of the switch of audit and the index of discretionary accruals. This represents a negative and non-significant relationship between the switch of auditor and earnings quality variables.

International Journal of Accounting and Financial Reporting

Wided Khiari

This paper aims to test the impact of some corporate governance characteristics on the management of the accounting earnings measured by discretionary accruals. As for the prior research we treat the level of management of accounting earnings as a "proxy" for the quality of the accounting and financial information published by companies. Empirical analysis is based on the modified Jones model (1995) to estimate discretionary accruals and a panel data model applied to a sample of 21 companies listed on the Tunis Stock Exchange (BVMT) over a period of 3 years from 2008 to 2010. The main findings of the current study reveal that, in the Tunisian context, the affiliation of auditors to a "Big" international network and the independence of the board of directors significantly constrain the practice of managing the accounting earnings and, consequently, they improve the quality of the published result. However, the number of independent members in the audit committee h...

Ali Al-Thuneibat

The main purpose of this study was to investigate the effect of audit quality, measured by average clients' size of auditing firm, on the earnings management activities, measured by the value of discretionary accruals. This study was done controlling two moderating variables, which are the client importance and auditor’s name. Simple and Multiple Regressions were used to study the effects of audit quality on earnings management, and ANOVA was used for comparing the effects of auditor's name on the relation between audit quality and earnings management. The findings of the study indicated that audit quality has a relatively weak negative influence on discretionary accruals, and this, in turn, has a relatively weak negative influence on the manipulations done by management. The moderating variable client importance has no significant effect on the relationship between audit quality and discretionary accruals. So auditor’s name is the moderating variable. The researchers recomm...

Uluslararası İktisadi ve İdari İncelemeler Dergisi

AHMET ÖZCAN

SSRN Electronic Journal

Prof. mohamed soliman

Research Journal of Finance and Accounting

hamid birjandi

In developed economies, the audit process is very important measure of capital and political stability. This is despite the fact that in developing countries likes Iran. The audited financial statements of the most important tools for ensuring the transparency of financial information, which is to increase the predictive power of accounting information, such as financial ratios earnings per share is.Therefore, the quality of accounting information quality increases and future returns of the grounding of the information obtained will be closer to reality. The measures related to earnings management may lead to the disclosure of financial information to be false, because it is not provided in accordance with the actual conditions. Audit process as a moderator variable reduction measures related to earnings management. This paper examines the relationship between audit quality and earnings management among firms listed in Tehran Stock Exchange paid.And towards that goal, all of the com...

Qasim Zureigat

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• DOI: 10.1016/j.jksus.2024.103275
• Corpus ID: 270524614

Health risk assessment of groundwater quality: A case study of Pratapgarh district U.P, India

• Sandhya Maurya , Abhishek Saxena
• Published in Journal of King Saud… 1 June 2024
• Environmental Science, Geography
• Journal of King Saud University - Science

21 References

Hydrochemical characterization and water quality perspectives for groundwater management for urban development, the sources, leaching, remediation, and environmental concerns associated with groundwater salinity, nitrate contaminated groundwater and its health risk assessment in semi-urban land, spatiotemporal assessment of groundwater quality in the central ganga plain, india, using multivariate statistical tools, groundwater quality monitoring for assessment of pollution levels and potability using wpi and wqi methods from a part of guntur district, andhra pradesh, india, the remediation efficiency of heavy metal pollutants in water by industrial red mud particle waste, the combination of the quality index, isotopic, and gis techniques to assess water resources in a semi-arid context (essaouira watershed in morocco), hydrochemical characteristics and health risk assessment of groundwater in karst areas of southwest china: a case study of bama, guangxi, pollution characteristics and source analysis of microplastics in the qiantang river in southeastern china., appraisal of vulnerable zones of non-cancer-causing health risks associated with exposure of nitrate and fluoride in groundwater from a rural part of india., related papers.

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Analysis of the heterogeneous coordination between urban development levels and the ecological environment in the chinese grassland region (2000–2020): a case study of the inner mongolia autonomous region, share and cite.

Wang, Y.; Yang, Y. Analysis of the Heterogeneous Coordination between Urban Development Levels and the Ecological Environment in the Chinese Grassland Region (2000–2020): A Case Study of the Inner Mongolia Autonomous Region. Land 2024 , 13 , 951. https://doi.org/10.3390/land13070951

Wang Y, Yang Y. Analysis of the Heterogeneous Coordination between Urban Development Levels and the Ecological Environment in the Chinese Grassland Region (2000–2020): A Case Study of the Inner Mongolia Autonomous Region. Land . 2024; 13(7):951. https://doi.org/10.3390/land13070951

Wang, Yue, and Yongchun Yang. 2024. "Analysis of the Heterogeneous Coordination between Urban Development Levels and the Ecological Environment in the Chinese Grassland Region (2000–2020): A Case Study of the Inner Mongolia Autonomous Region" Land 13, no. 7: 951. https://doi.org/10.3390/land13070951

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