How this site grades earnings quality
Last updated October 20, 2026. Thresholds below are the ones the code uses today.
Earnings quality asks whether reported profit is backed by cash and honest accounting. This site grades every stock on five checks from its latest 10-K, each as ok, watch or flag, and rolls them into a rating: two or more flags is Weak, one flag or two or more watch grades is Mixed, otherwise Strong. A flag is a reason to read the filing, not a verdict.
What are the five checks and their thresholds?
| Check | What it measures | Ok | Watch | Flag |
|---|---|---|---|---|
| Beneish M-score | Eight ratios comparing this year's books with last year's (Messod Beneish, 1999); higher means more like known manipulators | below −2.22 | −2.22 to −1.78 | above −1.78 |
| Accruals ratio | (Net income − operating cash flow) ÷ average total assets (Richard Sloan, 1996) | under 5% | 5% to 10% | over 10% |
| Cash conversion | Operating cash flow ÷ net income, up to three years | 90% or more | 70% to 90% | under 70% |
| Stock-based compensation | Stock comp as a share of revenue | under 5% | 5% to 10% | over 10% |
| Share dilution | Yearly change in share count | under 1% | 1% to 3% | over 3% |
Definitions of each are in the glossary: Beneish M-score, accruals ratio, cash conversion and stock-based compensation.
How do the checks become a rating?
| Rating | Rule |
|---|---|
| Weak | Two or more flags |
| Mixed | One flag, or two or more watch grades |
| Strong | No flag and at most one watch grade |
| Not rated | Fewer than three of the five checks could be computed |
On October 17, 2026, 246 stocks were scored: 201 Strong, 38 Mixed and 7 Weak.
Which stocks are not graded?
Banks, insurers and REITs: working capital, accruals and cash conversion do not mean the same thing for companies whose business is lending, underwriting or holding property. Companies with too little filing history for at least three checks are also left out; they are listed on the screener page with the reason.
What are the limits?
Fast-growing companies and recent acquirers often trip the M-score and accruals checks without any wrongdoing. Cash conversion has no meaning while a company is losing money. Annual data lags by up to a year. Treat a Weak grade as a prompt to read the 10-K.
Where does the data come from?
Each company's latest 10-K through the SEC's structured company-facts (XBRL) data on SEC EDGAR; the filing behind any figure opens from its stock page. The weekly refresh recomputes every grade.
Frequently asked questions
Does a Weak rating mean fraud?
No. The checks are statistical flags. Rapid growth, an acquisition or heavy stock compensation can trip them in an honest company.
Why is stock-based compensation part of earnings quality?
Profit and free cash flow often add it back as a non-cash cost, but it still costs owners through dilution or buybacks used to offset it.
How often are the grades updated?
The inputs change when a company files a new 10-K; the page is rebuilt weekly, so a grade can change within a week of a filing.