Quality of Earnings (QoE) Report: Definition, Adjustments, Checklist, Example & Template

A Quality of Earnings (QoE) report validates earnings sustainability by adjusting for one-offs, accounting inconsistencies, and working capital impact, giving buyers and sellers a clear, reliable view of the company’s normalized performance.

In mergers and acquisitions, the key question is “What is this business really earning?” The answer shapes valuation, deal structure, and transaction success. Quality of Earnings (QoE) analysis provides this clarity, ensuring informed decisions and reducing financial risks.

A Quality of Earnings (QoE) report goes beyond standard financial statements, offering a detailed analysis of a target company’s financials to reveal its true, sustainable earning potential. For buyers and sellers, understanding the QoE meaning in finance is key to a clear and successful deal.

This guide explains the Quality of Earnings due diligence process, showing how it examines revenue, expenses, and adjustments, and explains why it is a non-negotiable part of modern mergers and acquisitions.

What Is a Quality of Earnings (QoE) Report?

So, what is a quality of earnings report? It is an independent analysis of a company’s historical earnings to determine whether they are accurate and likely to remain sustainable. Professional Quality of Earnings Services apply this analysis to normalized EBITDA, revenue quality, working capital, and transaction risks before closing.

QoE report adjusts reported earnings for non-recurring items, accounting choices, and operational inconsistencies. The main aim is to provide a “normalized” view of profitability, usually shown as Normalized EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

The results of a quality of earnings analysis go beyond a single number. They typically include:

• Adjusted net income or EBITDA (Normalized EBITDA)
• Identification of one-off and non-operating expenses
• Working capital adjustments
• Revenue recognition review
• Customer concentration risk analysis

Understanding what is a QoE matters because different users rely on it for specific needs:

• Private equity firms and corporate buyers use it to validate seller’s financial claims and build accurate valuation models.
• Lenders use it to test a company’s debt repayment capacity.
• Sellers use it to prepare for a sale, identify possible issues early, and support their asking price.

In practice, QoE meaning finance is part of pre-acquisition due diligence. Prepared before the final agreement, it guides sale and purchase agreement (SPA) clauses and supports earn-out or working capital negotiations. Without a QoE, buyers rely only on GAAP statements, which ignore unusual or non-recurring items.

Many confuse reported earnings with earnings quality. Reported earnings show what a company records in financial statements, while earnings quality measures how reliable, sustainable, and free from accounting distortions those earnings are. The table below illustrates this key difference.

Aspect	Reported Earnings	Earnings Quality (QoE View)
Basis	Taken directly from GAAP or statutory financials	Adjusted for unusual or non-recurring items
Includes	All items, including one-time gains/losses and accounting choices	Only core, ongoing business results after removing non-recurring items
Purpose	Meets compliance and disclosure standards	Helps investors, lenders, and buyers assess true profitability
Common Output	Net income, reported EBITDA	Normalized EBITDA or adjusted net income

Why QoE Matters in Financial Due Diligence

A quality of earnings (QoE) due diligence process is essential to reducing risk in a transaction. Company valuations are often based on a multiple of EBITDA. If EBITDA is overstated or not sustainable, the buyer could overpay by millions.

The QoE report directly affects critical deal terms in the Sale and Purchase Agreement (SPA). One key area is the analysis of net working capital (NWC). The report defines a normal NWC level, which sets the “WC peg” or target in the SPA. This ensures that neither party is disadvantaged by unusual changes in working capital around the closing date.

A thorough quality of earnings assessment can also highlight risks that influence other deal terms.

For example, if a seller’s earnings depend heavily on a single customer or a one-off project, the buyer may negotiate for an earn-out provision. An earn-out makes a portion of the purchase price contingent on the business achieving agreed performance targets after the sale, safeguarding the buyer if expected earnings do not materialize.

QoE vs Audit

People often confuse a quality of earnings report vs audit, but they serve very different purposes.

A financial audit provides an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with a specific accounting framework (like GAAP or IFRS).

A QoE analysis, on the other hand, is not an opinion. It is an investigative process designed to normalize earnings for a transaction. It does not check for compliance in the same way an audit does. Instead, it scrutinizes the quality and sustainability of those earnings.

The table below highlights the quality of earnings report vs audit key differences:

Aspect	Financial Audit	Quality of Earnings (QoE) Report
Objective	Provide an opinion on historical financial statement fairness.	Assess the sustainability of future earnings and cash flows for a transaction.
Scope	Follows formal auditing standards (e.g., GAAS). Focuses on materiality across the entire financial statements.	Flexible and tailored to the deal. Focuses on EBITDA, net working capital, and key business drivers.
Materiality	Defined in the context of the overall financial statements. An item might be immaterial for an audit but very material for a QoE.	Lower threshold. Focuses on items that could impact valuation, even if small in an audit context.
Output	An audit opinion (e.g., “unqualified opinion”).	A detailed report with a calculation of Normalized EBITDA, NWC analysis, and identified risks.

In short, an audit looks backward to confirm what happened. A QoE looks forward to helping predict what will happen, making it an essential tool for valuation and deal-making.

QoE Methodology & Process Steps

A quality of earnings review follows a structured process to ensure accurate QoE analysis. While the depth of work depends on the company’s size and structure, the core steps remain the same. The process is collaborative and requires constant communication with management to validate findings and address concerns.

The typical quality of earnings process steps include:

Step 1: Engagement Setup and Scope Definition

The process starts with a meeting to confirm objectives, key focus areas, and the project timeline. A scope of work (SoW) document is prepared to outline deliverables, responsibilities, and data access.

Key considerations include:

• Transaction type (asset vs stock deal)
• Carve-out complexity
• International operations
• Known accounting or operational issues

This planning phase usually takes 2–3 days but prevents delays and scope changes later. The quality of earnings scope of work also defines the historical period to be analyzed (normally two to three years plus the trailing twelve months) and focus areas such as proof of cash, revenue trends, gross margin, and operating expense analysis.

Step 2: Data Room Review and Document Analysis

The analytical team issues a request list for financial and operational data to identify trends, any unusual items, or areas requiring detailed analysis. Essential documents include:

• Monthly financial statements for 24-36 months
• General ledger details for major accounts
• Revenue contracts and pricing agreements
• Payroll and employee data
• Working capital schedules and aging reports

Step 3: Analytical Procedures and Testing

The quality of earnings analysis begins with trend analysis, ratio calculations, and variance testing. The team reconciles data and evaluates revenue, margin, and expense patterns in detail.

Step 4: Management Interviews

The analytical team holds regular interview sessions with management to understand business operations, discuss preliminary findings, and ask clarifying questions about trends and anomalies.

Step 5: Draft Findings & Report

The team prepares a draft report that summarizes the key findings, adjustments to EBITDA, and working capital analysis. This draft is shared with the client for review and discussion.

Step 6: Final Report Delivery

After incorporating feedback and finalizing all analyses, the final QoE report is issued. This document serves as a key reference throughout the final stages of the deal.

QoE Adjustments & Normalized EBITDA

The main result of a QoE report is Normalized EBITDA. It’s calculated by adjusting reported EBITDA for non-recurring items, accounting errors, and unusual costs. These quality of earnings adjustments help present the company’s actual earnings potential accurately.

Normalized EBITDA = Reported EBITDA +/- Non-Recurring Revenue & Expenses +/- Out-of-Period Adjustments +/- Non-Operating Items +/- Pro Forma & Run-Rate Adjustments

EBITDA Add-Backs

EBITDA Add-Backs are expenses on the income statement that are added back to profit because they are not expected to continue after the acquisition. Common normalized EBITDA adjustments include:

• One-Time or Non-Recurring Expenses: Such as legal fees from a lawsuit, severance for a one-time layoff, or costs from a facility relocation.
• Discretionary Owner Expenses: Above-market owner salaries, personal travel, or family members on payroll who are not active in the business.
• Non-Operating Items: Gains or losses from the sale of assets or other activities unrelated to the core business operations.

Sample QoE Adjustments (Normalized EBITDA Calculation)

Particular	Adjustment Type	Add-Back / Deduction ($)
Opening: Net Income		$700,000
Add: Interest Expense		$120,000
Add: Taxes		$80,000
Add: Depreciation & Amortization		$100,000
Reported EBITDA		$1,000,000
Add: Positive EBITDA Add-Backs
A. Non-Recurring or One-Time Expenses
	Litigation settlements (non-recurring)	$50,000
	Restructuring or reorganization costs	$40,000
	Transaction-related expenses (M&A, advisory)	$60,000
	Severance or termination payments	$30,000
	One-time consulting fees	$20,000
B. Owner and Related-Party Adjustments
	Owner’s personal travel and entertainment	$15,000
	Personal vehicle expenses	$10,000
	Charitable contributions (non-business)	$5,000
	Family members on payroll (non-business roles)	$12,000
	Excess owner compensation	$25,000
C. Non-Cash Expenses
	Impairments or write-downs	$18,000
	Stock-based compensation	$22,000
	Unrealized losses on investments or Forex	$8,000
D. Other Non-Operating or Extraordinary Items
	Start-up or pre-opening costs	$14,000
	Disaster recovery costs	$16,000
	Loss on asset sale	$9,000
	Penalties or fines (non-recurring)	$7,000
	Insurance proceeds (unusual event)	$12,000
Subtotal – Positive EBITDA Add-Backs		$373,000
Less: Negative EBITDA Add-Backs
A. Recurring and Understated Expenses
	Rent adjusted to market rates	$(20,000)
	Salaries normalized to market	$(30,000)
	Family members underpaid (normalized)	$(10,000)
	Annual audit and compliance fees	$(12,000)
	Ongoing IT maintenance	$(8,000)
	Repair and maintenance capitalized mistakenly	$(9,000)
B. Operating and Normalization Adjustments
	Replacement costs for outdated equipment	$(15,000)
	Customer discounts or incentives not recorded	$(6,000)
	Vendor credits unsustainable	$(5,000)
	Related-party transactions normalized	$(10,000)
C. Expected or Recurring Legal and Compliance Costs
	Ongoing litigation costs	$(12,000)
	Regulatory compliance	$(7,000)
	Environmental remediation (recurring)	$(8,000)
D. Other Negative Adjustments
	Insurance premiums normalized	$(6,000)
	Subsidized utilities or facility costs	$(4,000)
	Deferred operating costs	$(5,000)
Subtotal – Negative EBITDA Add-Backs		$(167,000)
Normalized EBITDA		$1,195,000

Working Capital Adjustments

Working capital adjustments are made during a Quality of Earnings review or an M&A deal to align a company’s net working capital (NWC = Current Operating Assets – Current Operating Liabilities) with its normal operational level. These adjustments account for seasonality, unusual customer or vendor payment terms near closing, and normalize rapid growth.

In practice, the company’s Actual Closing Working Capital is compared with an agreed-upon Target Working Capital by both parties. This ensures the purchase price reflects a fair and sustainable liquidity position for ongoing business needs.

Sample Working Capital Reconciliation

Particulars	Closing Balance	Adjustment	Adjusted Balance
Current Assets
Accounts Receivable (AR)	$5,200,000		$5,200,000
Add: Early customer collections		$300,000	$5,500,000
Less: Delayed collections		$(150,000)	$5,350,000
Less: Non-trade receivables		$(50,000)	$5,300,000
Less: Doubtful/uncollectible AR		$(100,000)	$5,200,000
Less: Intercompany receivables		$(75,000)	$5,125,000
Less: Unrecorded credit notes/rebates		$(25,000)	$5,100,000
Accounts Receivable (Adjusted)			$5,100,000
Inventory	$3,800,000		$3,800,000
Less: Seasonal buildup/depletion		$(200,000)	$3,600,000
Less: Obsolete/slow-moving stock		$(100,000)	$3,500,000
Less: Consignment/3rd-party goods		$(50,000)	$3,450,000
Less: Damaged/excess stock		$(25,000)	$3,425,000
Less: One-time bulk purchases		$(75,000)	$3,350,000
Add: Valuation method differences		$50,000	$3,400,000
Inventory (Adjusted)			$3,400,000
Prepaid Expenses & Other C/A	$500,000		$500,000
Less: One-off prepayments		$(50,000)	$450,000
Less: Non-operating prepaids		$(25,000)	$425,000
Less: Advances/deposits not recurring		$(25,000)	$400,000
Prepaid Expenses & Other C/A (Adjusted)			$400,000
Total Current Assets (Adjusted)			$8,900,000
Current Liabilities
Accounts Payable (AP)	$2,700,000		$2,700,000
Add: Delayed vendor payments		$100,000	$2,800,000
Less: Early vendor payments		$(50,000)	$2,750,000
Less: Related-party payables		$(25,000)	$2,725,000
Less: Non-trade liabilities		$(25,000)	$2,700,000
Accounts Payable (Adjusted)			$2,700,000
Accrued Expenses	$1,200,000		$1,200,000
Less: Growth-related accrual spikes		$(50,000)	$1,150,000
Less: One-time accruals		$(100,000)	$1,050,000
Add: Payroll/benefits timing		$25,000	$1,075,000
Less: Utilities/rent timing		$(10,000)	$1,065,000
Accrued Expenses (Adjusted)			$1,065,000
Other Current Liabilities	$600,000		$600,000
Less: Deferred revenue (not assumed)		$(50,000)	$550,000
Less: One-time provisions		$(25,000)	$525,000
Less: Intercompany liabilities		$(20,000)	$505,000
Less: Deal-related accruals		$(30,000)	$475,000
Other Current Liabilities (Adjusted)			$475,000
Total Current Liabilities (Adjusted)			$4,240,000
Closing Working Capital (CA – CL)			$5,000,000
Total Adjustments		$(860,000)
Normalized Working Capital (NWC)			$4,140,000

Adjustment Impact Rule:

• If Normalized WC > Target WC → Seller gets positive adjustment (price up)
• If Normalized WC < Target WC → Buyer gets negative adjustment (price down)

Revenue Recognition and Quality Analysis

Revenue Recognition and Quality Analysis ensures revenue is recorded in the correct accounting period. It identifies early recognition risks, such as “bill-and-hold” sales, and verifies proper accounting for customer returns and discounts. Period-end cut-off testing helps confirm if the reported revenue is accurate, reliable, and sustainable.

Customer Concentration Analysis

Customer Concentration Analysis examines revenue by customer to assess concentration risk. Relying heavily on one customer can threaten future earnings if lost. The analysis also evaluates customer relationship stability and whether contracts support consistent, long-term revenue for the business after a transaction.

Sample Quality of Earnings Report

A Quality of Earnings (QoE) Report is a financial due diligence document that evaluates the accuracy, sustainability, and reliability of a company’s earnings.

While every QoE report is customized, they generally follow a standard structure to present findings in a logical and easy-to-follow manner. Understanding this structure helps you know what to expect from a sample quality of earnings report.

A typical QoE report example includes the following sections:

1. Executive Summary

The executive summary is a one-to-two-page section that highlights the key findings of the financial due diligence. It provides an overview of the target company’s earnings quality, risks, and important adjustments, allowing investors and buyers to quickly understand the overall financial health before reviewing detailed analysis.

Executive summary usually includes:

• Overview of the company’s financial performance
• Key revenue and expense trends
• Major adjustments to reported earnings
• Normalized EBITDA or net income
• Working capital analysis and adjustments
• One-time or non-recurring items
• Risks and red flags identified during review
• Summary of cash flow analysis
• Overall assessment of earnings sustainability

2. Profit & Loss (Normalized EBITDA)

The Profit & Loss (P&L) statement shows the reported profit/loss of a business as stated in its financial statements, without any adjustments. It presents a direct view of the target company’s revenues, expenses, and net result, giving a clear baseline of financial performance.

The reported profit/loss figures provide the foundation for calculating Normalized EBITDA. While the P&L statement shows the raw outcome, Normalized EBITDA adjusts these results to remove one-time, non-operational, or extraordinary items, making earnings more consistent and useful for analysis.

Normalized EBITDA = Reported EBITDA +/- Non-Recurring Revenue & Expenses +/- Out-of-Period Adjustments +/- Non-Operating Items +/- Pro Forma & Run-Rate Adjustments

Sample Schedule of Normalized EBITDA

Particular	Amount
Reported EBITDA	$ 2,500,000
Add: Non-Recurring/Extraordinary Expenses	$ 300,000
Less: Non-Recurring/Extraordinary Income	$ (150,000)
Add: Owner’s/Related Party Compensation (Above market rate adjustment)	$ 200,000
Less: Owner’s/Related Party Compensation (Below market rate adjustment)	$ (100,000)
Add: Non-Essential/Personal Expenses included in the business	$ 75,000
Less: Income/Expenses from Discontinued Operations	$ (50,000)
Add: Below-Market Rent Expense (Adjust to market rate)	$ 80,000
Less: Above-Market Rent Expense (Adjust to market rate)	$ (60,000)
Add: Other Non-Core or One-Time Adjustments	$ 120,000
Less: Other Non-Core or One-Time Adjustments	$ (40,000)
Normalized EBITDA (Pro-Forma or Adjusted EBITDA)	$ 2,875,000

The normalized EBITDA of $ 2,875,000 shows the company’s true operating profit after adjusting for unusual expenses. Investors can use this figure to assess ongoing profitability, compare with peers, and make informed decisions on valuation or acquisition.

3. Balance Sheet

A balance sheet provides a snapshot of a target company’s financial position at a specific date. It shows what the company owns (assets), what it owes (liabilities), and the residual value for shareholders (equity).

Two key metrics from the balance sheet that investors focus on in a QoE analysis are Net Working Capital (NWC) and Net Debt Position, since both affect deal pricing, liquidity, and risk.

• Net Working Capital (NWC): It shows how much liquidity is tied up in daily operations. Buyers often adjust for seasonality, unusual items, or growth trends to arrive at a normalized NWC.

NWC = Current Operating Assets – Current Operating Liabilities

• Positive NWC shows the company can meet short-term obligations.
• Negative NWC may signal cash flow strain or over-reliance on vendor credit.

• Net Debt Position: It indicates the true debt burden after accounting for available cash. A higher net debt reduces the effective value for shareholders in a transaction.

Net Debt = Long-term Debt + Short-term Debt – Cash & Cash Equivalents

• Higher net debt means more financial risk.
• Lower or negative net debt (excess cash) strengthens the balance sheet and can improve deal value.

Sample Balance Sheet (for QoE Review)

Particular	Amount (in millions)
Assets
Current Assets
Cash & Cash Equivalents	$150
Accounts Receivable	$300
Inventory	$250
Total Current Assets (A)	$700
Non-Current Assets
Property, Plant & Equipment	$500
Other Long-Term Assets	$100
Total Non-Current Assets (B)	$600
Total Assets (A + B)	$1,300
Equity and Liabilities
Current Liabilities
Accounts Payable	$280
Accrued Expenses	$120
Short-Term Debt	$100
Total Current Liabilities (C)	$500
Non-Current Liabilities
Long-Term Debt	$300
Total Non-Current Liabilities (D)	$300
Total Liabilities (C + D)	$800
Shareholders’ Equity
Common Stock	$300
Retained Earnings	$200
Total Shareholders’ Equity	$500
Total Liabilities & Equity	$1,300

Quick Analysis:

Net Working Capital (NWC): $700 – $500 = $200 million

The company has a healthy short-term buffer to fund operations.

Net Debt Position: ($100 + $300) – $150 = $250 million

The business carries moderate debt after considering available cash.

4. Cash Flow

A cash flow statement shows the cash inflow and outflow of a business during a set period. It tracks three key areas: operating activities, investing activities, and financing activities. In QoE, this statement helps confirm whether reported earnings actually translate into real cash.

The cash flow statement is directly linked to the reconciliation process. It reconciles net income with working capital changes and non-cash items, showing true cash position. It ensures reported earnings match actual cash, reducing risks of overstated profits.

Sample Cash Flow Statement

Particular	Amount (in millions)
Cash Flow from Operating Activities
Net Income	$ 250
Add: Depreciation & Amortization	$ 40
Adjust: Change in Working Capital	$ (30)
Net Cash from Operating Activities	$ 260
Cash Flow from Investing Activities
Purchase of Equipment	$ (120)
Proceeds from Asset Sale	$ 20
Net Cash from Investing Activities	$ (100)
Cash Flow from Financing Activities
Loan Repayment	$ (80)
Dividend Paid	$ (30)
New Equity Raised	$ 50
Net Cash from Financing Activities	$ (60)
Net Increase in Cash	$ 100
Opening Cash Balance	$ 150
Closing Cash Balance	$ 250

This cash flow statement shows strong cash from operations of $260 Mn, exceeding investing and financing outflows. After capital spending and debt repayment, cash increased by $100 Mn, signaling financial stability, reliable earnings, and strong investor confidence.

5. Risks and Mitigations

Risks and mitigations analysis identify financial or operational issues that may affect the accuracy or stability of the target company’s earnings and outline actions to reduce them. Risks show potential concerns, while mitigations offer solutions, helping investors and buyers assess reliability, minimize exposure, and understand future performance clearly.

6. Appendices

Appendices sections at the end of a QoE report containing supporting documents, detailed schedules, calculations, and additional data referenced in the main report. They back up findings and let readers verify numbers, assumptions, and analyses without cluttering the main report.

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Quality of Earnings Checklist

A quality of earnings checklist is an essential tool for both advisors performing the analysis and companies preparing for it. It ensures all critical areas are examined. The checklist organizes due diligence and reduces the risk of missing key issues.

A good quality of earnings due diligence checklist is organized into several key areas:

Phase 1: Initial Data Request & Scoping

Financial Statements Detailed Trial Balances Management Reports Chart of Accounts Kick-off Call Organizational Chart

Phase 2: Revenue Analysis

A. Revenue Recognition & Trends Accounting Policy Review Revenue Reconciliation Monthly Trend Analysis Price vs. Volume Analysis Deferred Revenue

B. Customer & Product Analysis Customer Concentration Customer Cohort Analysis Product/Service Line Analysis Related-Party Revenue

C. Adjustments to Revenue Non-Recurring Revenue Out-of-Period Revenue Bad Debt Analysis

Phase 3: COGS & Gross Margin Analysis

Gross Margin Trend Analysis Component Analysis Inventory Valuation Policy Inventory Turnover & Days Inventory Outstanding (DIO) Obsolete or Slow-Moving Inventory Physical Inventory Count Reconciliations Supplier Concentration Capitalized Costs Standard Costing

Phase 4: Operating Expense (OpEx) Analysis

A. Salaries, Wages & Benefits Headcount Analysis Bonus & Commissions Owner/Executive Compensation Severance & Restructuring

B. Sales & Marketing Trend Analysis Discretionary Spending Customer Acquisition Cost (CAC)

C. General & Administrative (G&A) Professional Fees Rent & Facilities Insurance Related-Party Expenses

Phase 5: EBITDA Normalization Adjustments

Non-Recurring Items Owner & Management Adjustments Accounting Method Changes Pro Forma & Run-Rate Adjustments Other Common Adjustments

Phase 6: Cash Flow Overview

Cash Flow Analysis EBITDA to FCF Bridge Quality of Cash Flow

Phase 7: Balance Sheet & Working Capital

A. Net Working Capital (NWC) Analysis Trends in NWC Accounts Normalized Working Capital A/R Aging Analysis A/P Aging Analysis

B. Debt & Debt-Like Items Interest-Bearing Debt Unrecorded Liabilities

C. Capital Expenditures (CapEx) Maintenance (Recurring) & Growth (Discretionary) CapEx Fixed Asset Register

Phase 8: Data Integrity & Reconciliation

Tax Reconciliation Bank Reconciliation

Phase 9: Final Reporting

QoE Report Bridge Analysis Key Findings Supporting Schedules

You can download our complete Quality of Earnings Checklist in PDF and Word to guide your next project.

QoE Templates & Samples

A strong Quality of Earnings report template can speed up the analysis and reporting process. It provides a clear structure for key schedules, ensuring consistency and clarity. Templates serve as starting points, not final reports, since each deal has unique characteristics.

OGScapital offer several resources to help you get started:

• Quality of Earnings Report PDF (Sample): A full, redacted report showing the structure, language, and types of QoE analysis performed.

• Scope of Work (SoW) Template (DOC): Helps define objectives, scope, and deliverables for a QoE engagement.

• Excel Analysis Schedules (XLSX): Contains core analytical models such as the EBITDA bridge, net working capital roll-forward, and net debt schedule.

Contact us by filling out the form below to receive these QoE templates and samples.

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Buy-Side vs Sell-Side QoE

A QoE report can be commissioned by either the buyer or the seller, and the objectives differ slightly depending on the perspective.

A buy-side quality of earnings report is prepared for a potential acquirer. It helps validate the seller’s financial claims, highlights risks, and tests valuation assumptions. Buyers use the findings to negotiate purchase price and other terms in the SPA. The report maintains an investigative, skeptical tone to protect the buyer’s interests.

A sell-side quality of earnings report is prepared by the seller before marketing a business for sale. It identifies and resolves issues upfront, presents normalized earnings clearly, and builds buyer confidence. This process reduces surprises, supports higher valuation, and helps achieve a smoother, faster, and more credible transaction.

Aspect	Buy-Side QoE	Sell-Side QoE
Objective	Validate seller claims; Find risks and downward valuation adjustments.	Defend valuation; Identify issues upfront; Streamline the sale process.
Audience	Buyer, their advisors, and lenders.	Potential buyers (shared by the seller).
Outcome	Strengthens buyer’s position in negotiations.	Smoother, faster due diligence process.
Level of Scrutiny	More critical and conservative.	More promotional (but still fact-based).
Approach	Skeptical and risk-oriented.	Supportive and presentation-oriented.
Timing	Conducted after LOI / during diligence (buyer exclusivity period).	Conducted before going to market.
Key Beneficiaries	Buyer (reduced risk, informed pricing).	Seller (higher valuation, reduced surprises in diligence).
Impact on Deal	Purchase price adjustments; Renegotiation; Deal abandonment if risks are too high.	Smoother diligence; Reduced price erosion; Faster deal timeline.

Scope, Timeline, and Cost

The scope, timeline, and QoE report pricing depend on several factors. There is no one-size-fits-all answer, but knowing these variables helps set realistic expectations.

Key factors that influence the quality of earnings report cost and scope include:

• Company Size & Complexity: Larger companies with multiple divisions, locations, or currencies require more detailed work compared to smaller, single-location business.

• Quality of Financial Records: Companies with organized, audited financial statements and responsive management team make the QoE process faster than those with incomplete or disorganized records.

• Industry Specifics: Certain industries require deeper procedures. For example, analyzing inventory-heavy businesses or international operations usually adds more time and cost.

• Carve-Outs: Analyzing a carved-out division of a larger parent company is often more complex because of shared costs and intercompany transactions.

The typical quality of earnings timeline ranges from 3 to 4 weeks, depending on these factors and responsiveness of the company management. The Quality of Earnings price is usually based on the agreed-upon scope of work (SoW), with most reputed firms like OGScapital charging either a fixed fee or a capped fee structure.

Quality of Earnings Consulting & Analysis Services

At OGScapital, we provide professional Quality of Earnings analysis services for buyers, sellers, and lenders. Our process is efficient, clear, and focused on giving you the information you need to make confident decisions.

Our team is led by senior professionals with deep transaction experience. We work closely with you and the target company, ensuring every step of the analysis is smooth and adds real value.

Our Quality of Earnings consulting services include:

• A dedicated team led by a senior partner.
• A comprehensive QoE report with a clear executive summary.
• Full transparency on all adjustments and findings.
• Strict confidentiality to protect your sensitive information.
• Ongoing support during negotiations and closing.

To begin, we request access to your company’s financial data under a strict non-disclosure agreement (NDA) to ensure confidentiality. After a preliminary review, our team will share a detailed scope of work along with a clear pricing proposal.

Let us help you get your deal done right. Contact us for a confidential consultation.