The EQ filter stands for Earnings Quality. It helps you understand how reliable a company’s earnings are.
Some companies make their earnings look good on paper — but when you look at the real cash, it tells a different story. The EQ filter is here to help you spot that.
How Does the EQ Filter Work?
Our EQ filter uses two important financial checks to rate a company’s earnings:
1. Cash Conversion
This tells us how well a company turns its earnings into actual cash.
- The system looks at the income statement and the cash flow statement.
- It calculates a percentage that shows how much of the reported profit becomes cash.
- A result close to 100% is ideal — it means the company’s earnings are real and backed by cash.
- A lower number suggests weak cash flow or aggressive accounting.
Think of it like this: Would you rather someone tell you they “earned” money — or show you the money in their hand?
2. Accruals
This measures how much of the company’s earnings are non-cash-based.
- It uses data from all three of the company’s financial reports: the income statement, balance sheet, and cash flow statement.
- If a company is earning money mostly from accruals (like unpaid sales or estimates), that can be risky.
- A lower accrual score is better — it means the profits are more likely to be real.
🔎 Note:
After calculating the cash conversion and accrual scores, the system compares each company to all the others in the market. Then it ranks them and places each one into a simple category — from Very High to Very Low — so you can easily spot which companies have the strongest earnings quality.
What Do the Ratings Mean?
Each company gets an EQ rating that falls into one of these buckets:
- Very High – excellent earnings quality
- High – good earnings quality
- Neutral – average
- Low – below average
- Very Low – poor earnings quality
You can use this rating to help decide if you want to invest in a stock or avoid it.
Where Can I See the EQ Rating?
✅ 1. Company Header in the Advanced Chart
At the top of the Advanced Chart, near the Power Gauge and symbol info, you’ll see the EQ rating if available. It might say something like “Earnings Quality: High” or “EQ: Very Low.”
✅ 2. Health Check List View (for Portfolio Lists)
If you’ve created a Portfolio List, you can view all your stocks and their EQ ratings at once:
- Go to My Chaikin > All Lists > Portfolio List > Health Check>Earnings
- Look in the column labeled “Earnings Quality” or “EQ”
🔎 Note: You will only see Earnings Quality on this page if there are upcoming Earnings Reports within the next week or month (based on the time range selected).
Why Did the EQ Rating Change If the Company Didn't Report?
Even if the company hasn’t just reported earnings, the EQ rating can still change. Here's why:
- We wait for official filings
- The EQ rating updates after the company files its earnings with the SEC — not just when the media reports the numbers.
- This ensures we’re using the final, verified data.
- EQ is relative
- We compare each stock to others in the system.
- If other companies in the group report better or worse earnings, your stock’s EQ rating might shift — even if it hasn’t reported anything new.
- This kind of movement is totally normal — it’s just the model adjusting to keep things accurate and up to date.
Who Has Access to the EQ Filter?
The EQ rating is only available to subscribers of our Breakthrough Innovation service.
If you don’t see it and would like to access it, call us at 1-877-697-6783 — we’re happy to help.