Quality Of Earnings

The amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies such as inflation of inventory.

Investopedia Says:
Quality of earnings is considered poor during times of high inflation. Also, earnings that are calculated conservatively are considered to have higher quality than those calculated by aggressive accounting policies.

Related Links:
Companies can manipulate their numbers, so you need to learn how to determine the accuracy of EPS. How To Evaluate The Quality Of EPS
We go over the concepts behind the excitement over the most important figure in the stock market. Everything You Need To Know About Earnings
The math may be simple, but to make informed investment decisions, investors need to understand the many varieties of EPS and what each represents. Types Of EPS

Phrase describing a corporation's earnings that are attributable to increased sales and cost controls, as distinguished from artificial profits created by inflated values in inventories or other assets. In a period of high inflation, the quality of earnings tends to suffer, since a large portion of a firm's profits is generated by the rising value of inventories. In a lower inflation period, a company that achieves higher sales and maintains lower costs produces a higher quality of earnings-a factor often appreciated by investors, who are frequently willing to pay more for a higher quality of earnings. In the wake of the Enron debacle in 2001, quality of earnings became an issue of high priority and a variety of accounting reforms were under consideration. See also Financial Accounting Standards Board (Fasb); Operating Profit (Or Loss).