Quality of
Earnings
A Comprehensive, Detailed Look at Financial Performance
Whether it is to prepare for a sale, ensure key details of the company are documented for a potential buyer, or as a forecasting tool for future business potential, a Quality of Earnings report takes a comprehensive and detailed look at a company’s financial performance.
An analysis of a company’s revenue and expenses is critical to understanding the sustainability and accuracy of historical earnings, as well as providing insight into future earnings projections. Additionally, a QOE considers anomalies that may have occurred such as forgiven PPP loans, business disruption events, budgetary anomalies and other factors that are not identified in financial statements like third party transactions or company leadership.
Regardless of a business owner’s readiness to sell, a QOE report still helps:
- Analyzes revenue and expenses
- Identifies issues that impact business performance
- Prepares a business for a sale transaction
- Serves as a due diligence analysis for a potential buyer
Brady Ware understands the importance of Quality of Earnings reporting to help understand business performance, substantiate an offer price or identify reasons why a purchase offer might be amended. Each of our quality of earnings reports focuses on numerous, critical items.
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What Effective QOE Reports Provide
REVENUE
- Breakdown by key components such as customers, product/service lines, geographies, sales personnel and more
- Revenue analysis based on company generated versus external windfalls
- Analysis of historic revenue trends
- True underlying run rate of revenue, apart from fiscal year end adjustments and timing issues
EXPENSES
- Analysis of one-time expenses vs. recurring expenses
- Determination of fixed vs. variable costs
OPERATIONS
- Financial reporting including related party transactions, analysis of assumptions used in cash flow projections and scenario analysis, cash flow verification and proof of cash on hand, forecasting and budgeting
- Risk of future earnings based on issues such as:
- Customer concentrations
- Vendor/supplier concentrations
- Cost structure and sourcing considerations
- Price strategy and elasticity
- Key company leaders and strength of bench
- Strength of internal accounting function and identification of reporting issues
Insights & Perspectives
Exploring the QOE issue and how businesses use them, Brady Ware’s Mike Kiene discusses the need during a potential sale but also for an owner to identify and remedy key issues to prepare for a sale down the road.
Smart Business Online
Unlock the Secrets Hidden in Your Financials! Are you truly seeing the full picture of your company’s earnings? Dive into our comprehensive guide, “Quality of Earnings Reports Explained,” and discover how this vital tool can reveal the sustainability and reliability of your financial performance. Learn how to navigate M&A, fundraising, and strategic planning with confidence, and find out how to choose the right advisor to ensure your business thrives.
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Michael J. Kiene, CPA
Shareholder
mkiene@bradyware.com
Patrick C. Rasey, CPA
Shareholder
prasey@bradyware.com