Mark Osborne explains why quality of earnings matters in valuation. He walks through cash-to-revenue reconciliation, how adjustments affect earnings quality, and when to use EBITDA, net income, cash flow, and free cash flow.
You talk about cash-to-revenue proof, you know, okay, well maybe they have $1 million in reported earnings, but the more adjustments you have to make to get there, then the lower the quality drops. If you have to make adjust— a whole lot of adjustments to get the cash to reconcile, then that quality starts dropping. So there's— quality is such a huge, important part, you know, in QV. And then earnings, of course, you know, and And there's so many arguments, I guess, if you will, about, you know, well, what about EBITDA or net income versus cash flow or free cash flow? And it's like, it's all important, you know? So I'm the QV guy. Yes. Warning, may start talking about EBITDA, you know, as the shirt says. But the thing is, is every single bit of it's important. You have to understand all the tools in the box and which time you want to pull out which tool. And even then there's still different size hammers.
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