How many consecutive years the company has reported positive profits. Graham required a full decade of positive earnings. Companies with unbroken streaks across recessions likely have durable business models.
Formula
Description
Counts how many consecutive years the company has reported positive earnings. Benjamin Graham required a company to show positive earnings in every year of the past decade. A long positive earnings streak indicates business resilience and management competence.
Interpretation
Above 8 consecutive years is strong. Above 15 is exceptional. Companies with unbroken earnings streaks across recessions likely have durable business models. A single year of losses after a long streak deserves investigation, as it may represent a cyclical dip or a structural shift.
Related Risk Indicators
Whether gross margins are improving or declining over five years. A positive trend means the company is gaining pricing power or reducing costs. Negative trends in a mature business are a warning sign.
Whether bottom-line profitability is improving or declining over five years. A positive trend indicates the business is becoming more profitable. The most durable improvement comes from expanding gross margins rather than cost-cutting.
The lowest ROIC recorded over five years. A company with a high minimum ROIC (above 10%) maintains strong returns even in bad years, indicating a genuinely strong business with a durable competitive advantage.
Measures the accrual component of earnings relative to total assets. When cash flow exceeds reported earnings, the company has high-quality earnings. Large accruals relative to assets are a red flag for potential manipulation.
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