Quality of Earnings Services
Expert Financial Due Diligence for Confident M&A Transactions. Comprehensive Quality of Earnings analysis that validates financial performance, identifies risks, and drives successful deal execution for private equity firms, investment banks, and strategic acquirers.
What is Quality of Earnings Analysis Report?
Quality of Earnings (QoE) is a critical financial due diligence process that goes beyond standard audits to provide deep insights into a company's true earning power and financial sustainability, and reliability of reported results. Our comprehensive QoE analysis validates the accuracy and sustainability of a target company's historical financial performance, identifies potential risks, and normalizes earnings to reflect ongoing operational reality.
In today's complex M&A environment, a thorough Quality of Earnings analysis is essential for making informed investment decisions. Whether you're a private equity firm evaluating a platform acquisition, a strategic buyer assessing synergies, or a seller preparing for a transaction, our expert QoE services provide the clarity and confidence you need.
Why Quality of Earnings (QoE) Report Matters
Quality of Earnings reports have become the gold standard in transaction due diligence, with 90%+ of middle-market M&A deals now including a QoE analysis. Our reports help buyers avoid costly post-closing surprises, validate purchase price assumptions, and negotiate favorable deal terms based on normalized, sustainable earnings.
Quality of Earning (QoE) Analysis Components
Revenue Analysis
- ➤ Revenue recognition policy review
- ➤ Customer concentration analysis
- ➤ Contract terms and recurring revenue
- ➤ Seasonality and trend analysis
- ➤ Cut-off testing and period-end procedures
EBITDA Normalization
- ➤ Non-recurring items identification
- ➤ Normalization of Owner compensation
- ➤ Assessment & Normalization of Related party transactions
- ➤ Pro forma adjustments validation
- ➤ Run-rate analysis and synergies
Cost Structure Review
- ➤ COGS and gross margin analysis
- ➤ Operating expense benchmarking
- ➤ Personnel cost evaluation
- ➤ Vendor concentration assessment
- ➤ Fixed vs. variable cost analysis
Working Capital Assessment
- ➤ Net working capital calculation
- ➤ Days sales outstanding (DSO) trends
- ➤ Inventory turnover analysis
- ➤ Accounts payable management
- ➤ Working capital peg determination
- ➤ Receivables quality and Expected Credit Loss (ECL) analysis, including aging trends, customer concentration, and historical write-offs.
Cash Flow Analysis
- ➤ Cash vs. accrual earnings comparison
- ➤ Operating cash flow drivers
- ➤ Capital expenditure requirements
- ➤ Free cash flow generation
- ➤ Cash conversion cycle analysis
Risk Identification
- ➤ Accounting policy red flags
- ➤ Customer and vendor dependencies
- ➤ Litigation and contingent liabilities
- ➤ Regulatory compliance issues
- ➤ Internal control weaknesses
Our Proven Quality of Earnings (QoE) Methodology
1. Planning & Scoping
Understand transaction objectives, key concerns, and timeline requirements. Review preliminary financial information. Customize scope of work. Establish communication protocols.
2. Data Collection & Review
Comprehensive document requests. Efficient data room setup. Review historical financials and supporting documentation.
3. Detailed Analysis
Deep-dive on revenue, expenses, working capital, and cash flows. Management interviews. Validate assumptions, conduct testing procedures. Identify EBITDA adjustments. Ratio analysis, including margin trends, return metrics, and cost structure ratios.
4. Findings & Recommendations
Comprehensive report with executive summary. Identified risks and actionable recommendations. Facilitate stakeholder discussions.
5. Transaction Support
Available for questions and additional analysis. Assist with negotiations and support closing.
When You Need Quality of Earnings
Buy-Side Due Diligence
- ✓ Platform and add-on acquisitions
- ✓ Strategic acquisitions
- ✓ Management buyouts (MBOs)
- ✓ Carve-out transactions
Sell-Side Preparation
- ✓ Pre-marketing financial validation
- ✓ EBITDA optimization opportunities
- ✓ Issue identification and resolution
- ✓ Vendor due diligence (VDD)
Private Equity Transactions
- ✓ Platform investment evaluation
- ✓ Bolt-on acquisition screening
- ✓ Portfolio company exits
- ✓ Refinancing and recapitalizations
Complex Transactions
- ✓ Merger of equals
- ✓ Cross-border transactions
- ✓ Distressed M&A
- ✓ Roll-up strategies
Why Choose Akram for Quality of Earnings (QoE) Report
- ☆ Experienced Professionals: Former Big Four auditors, CFOs, and M&A advisors with hundreds of QoE engagements
- ☆ Industry Expertise: Technology, healthcare, manufacturing, business services, consumer products
- ☆ Rapid Turnaround: Compressed timelines without sacrificing quality
- ☆ Clear Deliverables: Insights, quantified adjustments, actionable recommendations
- ☆ Collaborative Approach: Work with your legal and financial advisors for seamless execution
- ☆ Independent & Objective: Unbiased financial analysis for confident decisions
Industry Insights & Best Practices
Common EBITDA Adjustments
- Owner compensation: Excess or below-market compensation for owner-operators
- Non-recurring items: One-time legal settlements, restructuring costs
- Related party transactions: Non-market rents
- Personal expenses: Non-business expenses through the company
- Pro forma adjustments: Cost savings, synergies, run-rate impacts
Red Flags to Watch
- Revenue concentration: High customer concentration risk
- Margin volatility
- Aggressive revenue recognition
- Working capital trends: Deteriorating DSO, inventory turns, payables
- Related party complexity
- Documentation gaps
Maximizing QoE Value
- Early engagement
- Organized data room
- Management access
- Clear objectives
- Collaborative mindset