Conducting informative profitability and valuation analyses requires reformulating the financial statements to separate operating activities—the core of value creation—from financing and other nonoperating activities. It also requires distinguishing between recurring and transitory items in...

In this paper, we discuss earnings quality and the related concept of earnings management, focusing on the primary financial accounts. For each key line-item from the financial statements, we summarize accounting and economic considerations applicable to that item, discuss implications for...