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Quality of Earnings Paperback – October 1, 1998

4.5 out of 5 stars 26 customer reviews

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Editorial Reviews

From Library Journal

O'glove is a former securities analyst who started the Quality of Earnings Report , used by many investment firms. With business historian Sobel, O'glove details a methodology to help the investor understand the role of the corporate annual report, cash flow and debt analysis, accounts receivable and inventories, the differences between shareholder reports and tax reports, and other documentation submitted to shareholders and potential investors. He advises investors to look carefully at all of the above, and he explains how to do research for more information. The book has a style suited to the investor with some experience and is technical. But it offers a great deal of substantive information that may be useful to those who use business libraries and collections. Steven J. Mayover, Free Library of Philadelphia
Copyright 1987 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

About the Author

Robert Sobel was a financial historian and Lawrence Stressin Distinguished Professor Emeritus of Business History at Hofstra University and the author of numerous books on finance, including" IBM: Colossus in Transition" and "The Pursuit of Wealth," He died in June 1999.
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Product Details

  • Paperback: 224 pages
  • Publisher: Free Press (October 1, 1998)
  • Language: English
  • ISBN-10: 0684863758
  • ISBN-13: 978-0684863757
  • Product Dimensions: 6 x 0.6 x 9 inches
  • Shipping Weight: 14.1 ounces (View shipping rates and policies)
  • Average Customer Review: 4.5 out of 5 stars  See all reviews (26 customer reviews)
  • Amazon Best Sellers Rank: #36,139 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By dennis wentraub on July 12, 2002
Format: Paperback Verified Purchase
Investors who want to survive need to avoid torpedo stocks - the one's you don't see coming to blow a hole in your portfolio. This requires arming yourself with a healthy skepticism. Your stock analyst may be under pressure not to disrupt investment banking deals with negative reports. The auditor's independent review may be compromised by a desire to secure "fat fees" for a host of additional advisory services. Bottom line: Investors need to trust in their own abilities and do the job of reading corporate reports themselves. Read the annual report and more detailed SEC required 10-K filing. This is the simple message of QUALITY OF EARNINGS. Interpreting trends in accounts receivable and inventory levels from publicly available reports are useful tools to spot problems before they impact a stock's price. This is the author's "most important" chapter and it is as good a discussion as I have seen on the subject. The importance of understanding accounting practice changes and their immediate impact on how earnings are reported is another important matter that gets attention here. We also see why "big bath" restructuring charges that lower the bar for short term earnings growth expectations have become a predictable consequence of corporate acquisitions and CEO transitions. Much of this material will be familiar to readers of more current books on the topic, but O'glove's clear explanations and use of the numbers to support his conclusions are instructive. Because this book was written in 1987 the majority of examples used are quaint at best (e.g., Church's Fried Chicken, Coleco, Adademy Insurance Group, etc.).Read more ›
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Format: Paperback
"Quality of Earnings" takes a vital approach toearnings analysis--looking beyond raw earnings as spun by companymanagement for "the street". O'Glove covers basics (Chapter1: "don't trust your [sell-side] analyst"), and goes on toincredibly important basics that most individual investors are notexposed to through CNBC and other mass media outlets (includingsell-side analysts' reports). Example: tracking inventory build-up andaccounts receivable levels can make you a lot of money(short-selling--note: this is a very risky practice), or alternatelysave your rear end (if "long-only").
"Shareholderreporting versus tax reporting," has its own chapter--as itshould. I would pay 10 times the price of the book just for thischapter, as the concept is unique as far as I've read.
The CFRA... and various other firms use the same simple concepts in this bookto advise their giant money-manager clients about the quality ofvarious public companies' earnings. Money managers pay many thousandsof dollars a year for research based on the principles offered in"Quality of earnings".
A warning: reading this bookcoupled with listening to public companies' management may lead you toshort selling; if you remain "long only", this book maymerely save your rear end.
"Quality of Earnings" is aimedat those who are willing to devote a little time to research on whatthey own; there are no hard & fast rules in here, just businesscommon sense and insight honed through years of work andobservation.
This book and Schilit's "FinancialShenanigans" remain very close to my heart.
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Format: Paperback Verified Purchase
I read this book because a Wall Street Journal story referred to it as "the" source for quality of earnings analysis. I was somewhat disappointed with the quantity and quality of new information and analytical techniques, but that's not a knock on the book. I think it boils down to your background. If you're a CFO, Controller or seasoned accountant, there may not be alot of new information here for you. The book may be much better for financial analysts that don't have a strong accounting background but need to be able to determine earnings quality. I personally found Creative Cash Flow Reporting (Mulford & Comiskey) to be more useful. Nevertheless, I'm glad to have Quality of Earnings in my library.
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Bought this as I've been told it's THE book to better understanding on the "quality" of a company's earnings. I was expecting different quantitative tools to uncover which firms had low quality earnings, and which ones had higher quality ones. Unfortunately, the analytic toolkit presented here is completely underwhelming.

The first 70 pages (out of 190 total) discuss various qualitative factors, such as not trusting analysts, reading carefully the shareholder letters to evaluate management, taking note of non-recurring expenses, etc. All fine, but also all pretty basic stuff that the serious fundamental investor already knows to do. Nothing new or eye-opening here.

Chapter 7, on tax reporting vs. shareholder reporting, was refreshing to see, as the author discusses the differences between the two, which could be substantial. However, as the author himself notes, tax reporting is only available to investors who own a significant stake in the company (greater than 5%), making it nearly impossible for the individual investor to obtain that type of information. So while the section was interesting, it's ultimately useless for most of the audience.

The real meat and bones is chapters 8 and 9, which deals with Acct. Receivable, Inventory, Debt, and Cashflow analysis. This was why I got the book in the first place. Yet even here, I was pretty disappointed. The author instructs to follow A.R. and inventory trends, and discusses positive and negative inventory divergence, and the importance of days sales in A.R., all are very useful. However, he doesn't mention how to calculate days sales in A.R., and completely omits other valuable calculations, including the days payable outstanding, the cash conversion cycle, etc. Basically, the chapter boils down to "watching bulging A.R.
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