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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?

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. 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 QofE services provide the clarity and confidence you need.

Why Quality of Earnings (QoE) Matters

90%
M&A Deals Use QoE
15-25%
Avg. EBITDA Adjustments
70%
Risk Identification Rate
3-6
Week Turnaround
  • Help buyers avoid costly post-closing surprises
  • Validate purchase price assumptions
  • Negotiate favorable deal terms based on normalized, sustainable earnings

Comprehensive 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
  • ➤ Owner compensation adjustments
  • ➤ 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

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.

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 QoE

  • Experienced Professionals: Former Big Four auditors, CFOs, and M&A advisors with hundreds of QofE 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, management fees
  • 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
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Frequently Asked Questions

Q: How long does a Quality of Earnings analysis take?

Typically 3-6 weeks from kickoff to final report, based on complexity and scope. Compressed timelines can be accommodated.

Q: What's the difference between QoE and an audit?

Audits review historical statements; QoE goes deeper for transaction purposes, identifying adjustments, analyzing trends, and assessing risks.

Q: How much does a Quality of Earnings report cost?

$30,000 to $150,000+ based on company size and deal complexity; most fall in $40,000-$80,000 for middle market.

Q: Should sellers get a QoE before going to market?

Yes; sell-side QoE surfaces issues early, supports faster due diligence, improved valuation, and reduced risk.

Q: What industries do you serve?

Technology and SaaS, healthcare, manufacturing, business services, consumer products, financial services, construction and real estate.

Q: Can you work under tight deal timelines?

Yes. Preliminary findings can be given in 1-2 weeks for urgent transaction needs.

Don't see your question? Contact our advisors directly.
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