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