"Quality is never an accident. It is always the result of intelligent effort."
- John Ruskin
"It is hard to make a good return over the long term by investing in poor-quality or even average businesses."
- Terry Smith
Worried about your companies’ financial health? Consider the Quality Factor.
When used as a noun, "quality" describes how good or bad something is. However in common usage, the word "quality" is only associated with good things, and it is most frequently used to mean "high quality." A "quality company" is taken to signify a high-quality company, while a "quality product" is taken to mean a high-quality product. The one thing that distinguishes quality from all the other characteristics is that it is unrelated to the stock's current market price. It largely depends on non-market data, often the periodic financial reports issued by businesses.
Utilizing criteria such as profitability, earnings stability and growth, leverage, assets and investments, accruals and cash flows, among others, the Quality factor assesses the financial and accounting quality of businesses.
It follows logically that knowledgeable and rational investors are prepared to pay a premium for enterprises that have several of the qualities described above. This is also known as the "Quality Effect" or "Quality Premium," and it denotes the potential for high-quality equities to outperform their inferior counterparts over extended periods of time.
