By Ryan Murphy, Managing Director of Transaction Advisory Services
When buyers and sellers discuss “earnings,” they are often referring to two different figures: the reported number and the normalized, sustainable number. A Quality of Earnings (QoE) report bridges that gap, offering a clear, objective view of a company’s true financial performance.
What is the Purpose of a Quality of Earnings (QoE) Report?
A QoE report goes beyond traditional audits by focusing on cash flow reliability and earnings sustainability. It dissects financial statements to separate recurring income from one-time, discretionary, or non-operational items.
At LCG, our team of experts analyzes trends across revenue recognition, expense classification, and working capital fluctuations to ensure that earnings reflect the business’s economic reality.
Why Does it Matter in M&A?
Buyers rely on QoE reports to assess valuation risk; sellers use them to validate performance and defend price. A well-structured report reduces diligence friction, speeds negotiations, and builds credibility with lenders and investors.
What Does a Quality of Earnings Report Typically Include?
- Adjusted EBITDA analysis and normalization
- Revenue and margin trend analysis
- Net working capital and cash flow review
- Identification of non-recurring items
- Reconciliation of management financials to accounting records
Conclusion
A Quality of Earnings report tells the real story behind the numbers. Whether you’re preparing to sell or evaluating an acquisition, our team provides clarity that supports smarter, more confident decision-making.
If you are interested in a Quality of Earnings report or have any questions regarding financial due diligence, contact Ryan Murphy at [email protected].