Evaluate Earnings Quality from 10-Q: AI Prompt for Claude & ChatGPT
Copy this Claude prompt to score 10-Q earnings quality for stock analysis. Works with Claude, ChatGPT, Gemini, and Grok on accruals and cash conversion.
This earnings-quality prompt for stock research scores accruals, cash conversion, and one-time items in a 10-Q. Paste filing excerpts into Claude, ChatGPT, Gemini, or Grok and treat the output as a checklist, not a conclusion.
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The Evaluate Earnings Quality from 10-Q prompt (Claude, ChatGPT, Gemini, Grok)
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You are a forensic accounting specialist and senior equity analyst. Perform a detailed earnings quality assessment for [COMPANY_NAME] (ticker: [TICKER]) using the most recent 10-Q filing and, where relevant, the year-ago comparable quarter. ## Context Focus on the income statement and cash flow statement from the 10-Q. If [FILING_CONTEXT] is provided, use it as the primary data source. Do not speculate about future results or provide investment recommendations. ## Required Analysis ### Part 1 - Cash Conversion Bridge Build a reconciliation table: | Line Item | Amount ($M) | % of Net Income | Starting from Net Income, walk through each major reconciling item to Operating Cash Flow: - Depreciation & amortization - Stock-based compensation - Working capital changes (receivables, inventory, payables, deferred revenue) - Other non-cash or one-time items Flag any single item that represents >20% of net income. ### Part 2 - Non-Recurring Item Identification For each non-recurring item found, provide: - Description and dollar amount - Whether it inflated or deflated reported earnings - Management's characterization vs your assessment - Impact on trailing-twelve-month (TTM) metrics if removed ### Part 3 - Accrual Quality Signals Evaluate these specific red/green flags: - [ ] Days Sales Outstanding (DSO) trend vs revenue growth - divergence? - [ ] Inventory days vs COGS growth - buildup? - [ ] Deferred revenue trend - accelerating or decelerating? - [ ] Change in accounting estimates or policies noted in the filing - [ ] Capitalization of costs that peers typically expense Rate overall accrual quality: Conservative / Neutral / Aggressive (with evidence). ### Part 4 - Quarter-over-Quarter & Year-over-Year Comparison Compare the current quarter to: - Same quarter last year (YoY) - note margin changes, mix shifts, one-time deltas - Prior sequential quarter (QoQ) - note seasonality vs structural changes ### Part 5 - Earnings Quality Scorecard Rate each (1-5, with justification): - Cash backing of earnings (OCF / Net Income ratio) - Absence of non-recurring inflation - Accrual conservatism - Revenue recognition transparency - Consistency with management narrative in MD&A ### Part 6 - Follow-Up Research Agenda List 3-5 specific questions to investigate (e.g. "Why did deferred revenue decline $Xm despite reported bookings growth?"). ### Part 7 - Visual Verification & Chart Follow-Up - Identify 2-3 visual inflection points that require multi-year chart inspection (e.g. quarterly revenue vs operating income growth, accruals trajectory, and operating margin trends). - Provide the direct Chartloom visual research link for the user to inspect these 10-year interactive charts: https://www.chartloom.com/c/ticker/[TICKER] ## Output Format Use structured headers, tables, and checklists. Neutral, research-oriented language only. Do not suggest whether to buy, sell, or hold. **Variables:** If any [BRACKETED] placeholders above are not set, ask the user for each missing value before proceeding.
Variables
Replace these placeholders in the prompt with your own values.
| Placeholder | Description | Example |
|---|---|---|
| [COMPANY_NAME] | Company name as in the 10-Q. | Microsoft Corporation |
| [TICKER] | Stock ticker symbol. | MSFT |
| [FILING_CONTEXT] | Optional: paste income statement, cash flow, and MD&A sections from the 10-Q for higher accuracy. | Paste 10-Q excerpts here (optional) |
How to use this prompt
Paste the prompt into your AI assistant. Replace [COMPANY_NAME] and [TICKER]. For significantly better results, paste key excerpts from the 10-Q (income statement, cash flow statement, MD&A) into [FILING_CONTEXT]. Use the output to structure your own reading of the filing.
Tips
- Pasting the actual income statement and cash flow sections dramatically improves accuracy.
- Compare the current quarter to the same quarter last year, not just sequentially, to account for seasonality.
- Pay special attention when OCF / Net Income diverges significantly from 1.0x in either direction.
- Check the 10-K for full accounting policy descriptions if the 10-Q references changes.
- Look for patterns across multiple quarters rather than reacting to a single data point.
When to use this prompt
Post-earnings analysis to separate signal from noise in reported results
Comparing earnings quality across peers to identify the most transparent reporters
Identifying non-recurring items that may distort trailing-twelve-month metrics
Building the earnings quality section of a long-form research note
Frequently Asked Questions
Earnings quality refers to how well reported earnings reflect sustainable, cash-backed performance. High quality typically means earnings are supported by operating cash flow and not inflated by one-time gains or aggressive accounting.
The 10-Q includes the full financial statements, MD&A, and footnotes. It provides deeper visibility into accruals, one-time items, and management commentary that the press release often omits.
It checks whether balance sheet items (receivables, inventory, deferred revenue) are growing in line with revenue and COGS. Divergences can signal aggressive revenue recognition, channel stuffing, or other quality concerns.
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Updated 2026-02-20
These prompts are research tools, not financial advice. Outputs should be independently verified. They are not a recommendation to buy, sell, or hold any security. See our disclaimer for more information.