Posts Tagged: Quality of Earnings Report

Quality of Earnings Report – Three Frequently Asked Questions

Last year, I wrote an article about the activity around quality of earnings (QoE) reports for M&A activity. To recap, a QoE report is a detailed analysis of all the components of a company’s earnings and the degree to which both cash and non-cash earnings, based on measurement and estimates, are subject to change. They are often prepared by independent third-party firms, such as a CPA firm, as part of due diligence in an acquisition. The one thing a QoE report is not, is an audit. There are no definitive criteria by which to guide the performance of, or reporting on, quality of earnings.

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The Importance of a Quality of Earnings (QoE) Report for M&A Activity

Lately, we have heard more conversations around the importance of quality of earnings (QoE) reports, likely due to the growing M&A activity in the region. The Association for Corporate Growth recently circulated the Citizens Bank 2018 report on Middle Market M&A Outlook, noting that 56% of sellers are currently involved in M&A activity or plan to be this year, an increase from 48% in 2017.

Business owners and deal makers sometimes question what, exactly, a QoE report is. In short, a QoE report is a detailed analysis of all the components of a company’s revenue and expenses. An analogy would be when you’re selling your home,

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