M&A Glossary: Quality of Earnings (QofE) Report

February 21, 2024/in Acquire a Business, Exit Planning, Sell a Business /by Exit Strategies

A Quality of Earnings (a.k.a. “QoE” and”QofE”) report is prepared by a CPA firm to provide a detailed analysis of a target company’s revenue, expenses, working capital, EBITDA adjustments, etc.

While not an Audit, a QoE provides buyers with important assurances on cash flows and risk. When buyers do this work internally its often just called “financial due diligence”, and when they outsource it, it’s called Quality of Earnings.

See this post comparing a QoE analysis to a financial Audit.

As sell-side M&A advisors, we often recommend a sell-side QofE for companies with more than $10 million in sales and over $2 million EBITDA or when their financials are not clearly organized or their revenue recognition is not straightforward.

For advice on exit planning or selling a business, contact Al Statz, founder and CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.