Earnings steadiness score
The earnings steadiness score measures the variability in a company's earnings stream from one period to the next over the past seven accounting periods. The proxy used to measure stability is based on the discrete total variation of the factor relative to its mean.
How to use the score
A high score indicates that there have been no large decreases in earnings in recent accounting periods and that, if any variation has occurred, it has mostly been upward. A low value indicates that most of the changes in earnings have been downward.
The following table can be used as a reference for this score:
| Score value range | Interpretation |
|---|---|
| 0 to 5 | Large negative variations in earnings |
| 5 to 7 | Small negative variations in earnings |
| 7 to 10 | Stable or increasing earnings |
Importance of the steadiness scores
Our valuation model uses past accounting variables to estimate a company's future evolution. The past stability of these variables allows us to predict that this stability will be maintained in the near future. Therefore, the scores calculated by Gradement are based on an expected behavior of the company and are more valid for making investment decisions.
A lack of stability in accounting variables, reflected in a low steadiness score, makes it difficult to estimate the company's future evolution and therefore devalues the usefulness of our calculated scores.