How to Calculate Quality of Income

by Anna Roberts; Updated September 26, 2017
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Quality of income ratios are a tool to evaluate a business' earnings performance. The ratio shows the percentage of earnings that have been actualized in cash. A high ratio is desirable because it indicates a large amount of earnings turning into profits. The percentage may be above 100 percent because the ratio doesn't take into account factors, such as replacement of productive assets.

Step 1

Find the cash flow from operating activities on your financial statement or statement of cash flows.

Step 2

Find the net income on your financial statement or statement of cash flows.

Step 3

Divide the cash flow from operating activities by the net income to calculate a percentage, which is the quality of income figure.

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