Quality of Earnings (QoE) Report: What It Is and How to Survive One
Written by Paul Jung, CFA
Curated by Rubric Financial
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What a QoE Actually Is
- A Quality of Earnings (QoE) report is a third-party financial analysis commissioned by an investor or acquirer during diligence. Typically 60-150 pages, prepared by an accounting firm (Big 4, BDO, Grant Thornton, RSM, or QoE specialists like Citrin Cooperman).
- Purpose: validate that the EBITDA and revenue you're claiming actually reflect the underlying economics of the business. Strip out one-time items, owner add-backs, accounting choices that boost reported numbers, and 'soft' assumptions.
- Result: 'Adjusted EBITDA' or 'Normalized Revenue', typically lower than what management reported. The lower number is what gets used in valuation negotiations.
- Standard in private equity transactions, increasingly common in Series A+ venture rounds for fintech / commerce / 'real revenue' companies, and required for most M&A deals over $10M.
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