Which of the following ratios most likely indicates that a company has earnings of high quality?

A. Operating cash flow/Net income > 1.
B. Investing cash flow/Net income > 1.
C. Financing cash flow/Net income > 1.

Correct Answer: A

An operating cash flow or net income of one or more indicates that all the earnings that have been recognized on an accrual basis on the income statement have also been recognized on a cash basis on the cash flow statement. The cash realization of earnings gives these earnings a higher value than similar earnings with less corresponding cash from operations, since the latter kind of earnings have a lower probability of being realized in cash.