Graphs for two companies, Ming Ltd. and Tom Ltd., are provided below, showing comparisons of net earnings and cash flows over a period of time.

Required:

Interpret the graphs and conclude, with an explanation, on which company appears to have a better quality of earnings.

Tom Ltd. Net Earnings vs. Operating Cash Flows 20X5 to 20X9

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Amount $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $ Amount 20x5 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 S 20x6 Net earnings Cash flow from operations Ming Ltd. Net Earnings vs. Operating Cash Flows 20X5 to 20X9 20X5 20X7 20x8 Year 20X6 20X7 Year 20X9 2008 20X9 Net earnings Cashflow from operations