# Earnings steadiness score

The **earnings steadiness score** tries to measure the level of variability in the company's earnings stream from one period to the next over the past seven accounting periods. The proxy used to measure the stability is based on the discrete total variation of the factor relative to its mean.

## How to use the score

A high value of this score will indicate that there have been no large downsides to the earnings in the last accounting periods and that, if any variation has occurred, most of them will have been upwards. A low value will indicate that most of the changes in the earnings have been downside.

The following table can serve as a reference for the use of this score:

Score value range | Interpretation |
---|---|

from 0 to 5 | Large negative variations in earnings |

from 5 to 7 | Small negative variations in earnings |

from 7 to 10 | Stable or increasing earnings |

## Importance of the steadiness scores

Our valuation model is based on the use of past accounting variables to estimate the future evolution of the company. The past stability of these variables allows us to predict that such stability will be maintained in the near future, so that the value of the scores calculated by Gradement will be based on an expected behavior of the company and, therefore, will be more valid when making investment decisions based on thems.

The lack of stability in accounting variables, reflected in a low value of this steadiness scores, makes it difficult to estimate the future evolution of the company and therefore devalues the usefulness of the scores we calculate.