Quality of Earnings Triangulation.
Is the profit this company reports the kind of profit a bank can lend against?
ONE OF EIGHT · FROM HOW BANKERS THINK · FREE · NO SIGNUP
// THE SHORT ANSWER
Quality of Earnings Triangulation tests reported profit from three independent angles at once — whether it converts to cash, whether the balance sheet is moving at the speed the income statement implies, and what the notes say and choose not to say — and reads the answer from whether the three agree. The redundancy is the point. A company can dress up one angle; dressing up two is hard; dressing up all three while keeping the auditor satisfied is close to impossible. The name borrows a private-equity due-diligence phrase and repurposes it for a lender's question.
// THE PARTS
- 01Profit-to-cash conversion — Operating cash flow over net income across at least five years, read for level, trend and volatility. The trend is the signal; the level is the context.
- 02Balance-sheet velocity — Whether receivables, inventory and payables are accelerating or slowing — margin pressure hides inside slowing velocity before it reaches the income statement.
- 03Disclosure language — What the notes, accounting policies and commentary say, what they have stopped saying, and how the language drifts over time.
RULING When the three angles disagree, bet on the cash flow and the notes.
// WHERE IT SITS
Every framework in the book is a structured way of answering one question — “How do I get my money back, with interest, across cycles?” — through the three questions beneath it. This one serves:
- QUESTION 01 · CREDITWill I get paid back?Cash flows, assets, business model, resilience across cycles.
The framework is developed in chapter 4 of How Bankers Think, Reading the Numbers Behind the Numbers. The short form is in the glossary; the architecture all eight hang from is on the frameworks page.
// WORKED IN
Where this site runs the framework on a file, free and without signup.
// THE OTHER SEVEN
This page is the working form. Chapter 4 is where the framework is developed — where it came from, where it breaks, what a senior banker does when it does, and the cases that turn it from checklist into instinct.