What is a stock's earnings persistence ratio?

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by jamir , in category: Stocks and Equities , 10 months ago

What is a stock's earnings persistence ratio?

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1 answer

by tess.kassulke , 10 months ago

@jamir 

The earnings persistence ratio (also known as the persistence of earnings or earnings reversion ratio) is a measurement that assesses the consistency and stability of a company's earnings over time. It represents the degree to which a company's current earnings can be relied upon as a predictor of its future earnings.


The ratio is calculated by dividing a company's earnings in the current period by its earnings in the previous period. A high earnings persistence ratio indicates that a company's earnings tend to persist or stay relatively stable over time, while a low ratio suggests that its earnings are more volatile or subject to significant fluctuations.


Investors and analysts often look at a stock's earnings persistence ratio to evaluate the quality and sustainability of its earnings. A higher ratio is generally preferred, indicating that a company's earnings are more predictable and likely to continue in the future. Conversely, a lower ratio may indicate that a company's future earnings are less certain and subject to more uncertainty and risk.