Calculate the income quality ratio, a financial metric that measures the cash flow from operating activities relative to the net income of the company.

The income quality ratio provides insights into the quality of a company’s reported earnings. By comparing the cash flow from operating activities to the net income, this ratio helps assess whether a company’s reported profits are backed by actual cash flow. A higher income quality ratio suggests higher earnings quality and a better ability to convert profits into cash flow.

The formula is as follows:

\[\text{Income Quality Ratio} = \text{Cash Flow from Operations} / \text{Net Income}\]

Also known as: earnings quality, accrual ratio.

No programming experience? With the Finance Toolkit MCP server, AI assistants such as Claude and ChatGPT can calculate the Income Quality Ratio for you. Just ask in plain English.

Calculate the Income Quality Ratio in Python

The Income Quality Ratio is available in the Ratios module of the open-source Finance Toolkit. Install it with:

pip install financetoolkit -U

Then call get_income_quality_ratio as shown below.

from financetoolkit import Toolkit

toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")

income_quality_ratios = toolkit.ratios.get_income_quality_ratio()

Which returns:

  2021 2022 2023 2024 2025
AAPL 1.0988 1.2239 1.1397 1.2616 0.9953
TSLA 2.0779 1.1701 0.8838 2.093 3.8869

Parameters

get_income_quality_ratio accepts the following parameters:

  • rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
  • growth (bool, optional): Whether to calculate the growth of the ratios. Defaults to False.
  • lag (int | str, optional): The lag to use for the growth calculation. Defaults to 1.
  • standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.
  • trailing (int): Defines whether to select a trailing period. E.g. when selecting 4 with quarterly data, the TTM is calculated.
Interest Burden Ratio Income Before Tax Profit Margin Effective Tax Rate Return on Assets (RoA) Return on Equity (RoE) Return on Invested Capital (RoIC) Return on Tangible Assets (RoTA) Return on Capital Employed (RoCE) Net Income per EBT Free Cash Flow Operating Cash Flow Ratio Tax Burden Ratio EBT to EBIT

The Ratios module page introduces the module, and the sidebar lists all of its functions.

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