What is a Quality of Earnings Report?

A Quality of Earnings (QoE) report is a comprehensive analysis conducted during an M&A transaction to assess the sustainability and accuracy of a company's earnings.  It’s typically a part of the buyer’s overarching financial due diligence.  

The QoE provides potential buyers with a detailed understanding of the target company's financial health, highlighting any factors that may affect its future profitability and cash flow.

A QoE includes revenue, expense, profitability, working capital, cash flow, balance sheet and normalization analysis.  Part of the process can involve converting non-GAAP financials to GAAP or modified GAAP.

The QoE is very important, as it often produces the adjusted EBITDA number to which the earnigns multiple is applied to establish the transaction purchase price.  

Because the QoE is so important, we strongly encourage sellers to get out in front of the process by doing their own QoE.