Question

When we talk about the concept of earnings persistence, what do we mean? Why is it...

When we talk about the concept of earnings persistence, what do we mean? Why is it important?

Homework Answers

Answer #1

Earnings persistence is defined as the quality of earnings that is expected to continue in the future and it is sustainable. Earnings are said to be persistence if it is generated through the core business operations of the company and not through a one-time event, say gain from the sale of an asset.

It is important for analysts because the quality earnings persistence is directly related to the value of the stock. Earnings should be persistence for a reliable forecast of the company's free cash flow.

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