Quality of Earnings
Thornton O'Glove built a career selling forensic analysis to institutional investors, and this book compresses his approach into a practical manual on how to read a company's financials as though management were an unreliable narrator. He walks through the specific tricks companies use to inflate reported earnings, from aggressive revenue recognition to underfunded pensions to inventory adjustments, and shows how the footnotes usually contain the story the press release hides. O'Glove pays particular attention to the differences between GAAP earnings and cash flow, and to the ratios that flag when something is quietly going wrong. The book has become required reading for value investors and short sellers, and Bill Ackman has cited it as a foundational text on how to actually analyze a company. Its examples are dated but the analytical habits it teaches are still the ones professionals use today.
What you might want to know about Quality of Earnings
The questions readers send us most often, answered without spoilers.
A classic guide to reading corporate financial statements with a suspicious eye, aimed at investors who want to know what management is trying not to tell them.
Ackman has publicly recommended O'Glove's book as one of the most important early reads for anyone doing fundamental analysis, and has cited it as a source of the skeptical habits he brings to his own investments.
No, though a basic familiarity with income statements and balance sheets helps. O'Glove explains the key concepts as he uses them, and the book is written for investors rather than accountants.
Quality of Earnings was written by Thornton O'Glove, published in 1987 by Free Press.
Quality of Earnings is 208 pages in standard print editions, though page counts vary slightly between hardcover, paperback, and large-print formats.
At an average reading pace of about 250 words per minute, Quality of Earnings takes most readers 3 to 5 hours to finish.
Quality of Earnings is available in hardcover, paperback, ebook, and audiobook formats from Amazon, Bookshop.org, ThriftBooks, and most major bookstores.