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Quality of earnings

An independent analysis normalising reported earnings — adjusting for owner compensation, related-party items, one-offs and revenue recognition — to establish sustainable profitability.

Quality of earnings — An independent analysis normalising reported earnings — adjusting for owner compensation, related-party items, one-offs and revenue recognition — to establish sustainable profitability.

A QoE analysis routinely surfaces a normalised earnings figure below the headline number in a founder's own materials — owner compensation add-backs, related-party transactions and one-off items all get adjusted, which is why sellers should expect and prepare for the gap rather than be surprised by it.

Frequently asked questions

Who performs a quality of earnings analysis?

Typically an independent accounting firm engaged by the buyer or investor, though sellers increasingly commission their own sell-side QoE in advance to identify and address issues before a buyer's team does.

Does a QoE analysis always lower the perceived value of a business?

Often it adjusts earnings downward from an unadjusted headline figure, but a clean QoE with few adjustments can also build real credibility and support the seller's valuation.

Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.

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