Income Quality Ratio
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.
Income Quality Ratio in Python
get_income_quality_ratio is part of 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.