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Fundas – Understanding the Quality of Earnings

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As part of our funda series, in this post we try and decipher the quality of earnings that companies post. Lot of emphasis is given on the Income or Profit and loss (P&L) statements as those record the profits that the companies post year on year. A company may be profitable year on year but the question to to be asked is what is the quality of those earnings? What do we mean by quality of earnings and how do we check that? Let us address these questions below . . .

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