Services / Buy-Side Quality of Earnings
Buy-Side Quality of Earnings (QoE) Reports
A Quality of Earnings report on your acquisition target, in full scope or as a streamlined review of adjusted EBITDA and the key deal risks.
What Buy-Side Quality of Earnings is
A buy-side Quality of Earnings report tests whether the earnings a seller presents are the earnings a buyer will actually own. It starts from reported results and works through the adjustments that separate recurring operating performance from one-time items, owner-related costs, accounting errors and timing differences. Because price is usually a multiple of adjusted EBITDA, each dollar of adjustment that should not have been accepted is paid for several times over.
Earnings are only part of the picture. A full-scope report also examines net working capital, which drives the purchase price adjustment at close, and reconciles the books to bank activity through a proof of cash, which tests whether the recorded receipts and payments actually moved through the accounts.
What the engagement covers
- Adjusted EBITDA
- A bridge from reported to adjusted earnings, with each proposed adjustment examined against the ledger and supporting documents.
- Net working capital
- Monthly working capital over the analysis period, its seasonality, and the information needed to set and negotiate a peg. Full scope.
- Proof of cash
- Reconciliation of ledger cash activity to bank statements for the periods covered. Full scope.
- Revenue quality
- Customer concentration and revenue trends where revenue by customer is available.
- Key deal risks
- The findings that matter for price, structure or further diligence, stated with the evidence behind them.
Scope options
Full
Adjusted EBITDA, working capital and proof of cash.
Lite
A streamlined engagement focused on adjusted EBITDA and the key deal risks within the agreed scope.
Who it is for
Acquirers, independent sponsors, searchers, private equity teams and lenders who need the target's earnings examined before price and terms are final.
How an engagement works
- 01
Scope
Choose the service and confirm the scope and CPA sign-off for your engagement at intake.
- 02
Share the evidence
Provide the financial statements, ledger detail and deal documents the engagement needs through a secure workspace.
- 03
Analysis
The work runs on Finsider's diligence software, which traces reported figures back to source records.
- 04
Reviewed deliverable
You receive a deliverable that has been through professional review, with the evidence behind its findings.
What we need from you
Required to start
- Legal business nameExact name as registered with the state and IRS.
- Entity typeDrives filing forms and tax treatment.
- EINFederal Employer Identification Number.
- State of formation
- P&L: last 3 fiscal years + YTDMonthly detail preferred.
- Balance sheets: last 3 fiscal years + YTD
- Monthly trial balances: analysis periodMonthly TBs for the full QoE analysis period.
- GL detail exportTransaction-level general ledger for the analysis period.
- Deal timeline / expected close date
Helpful if available
- States with activity / nexusEvery state with employees, property, or significant sales.
- Fiscal year end
- Cash flow statements: last 3 fiscal years + YTDIf not produced, we can derive from the GL.
- Trial balance / GL exportFull general ledger export covering the same periods.
- Revenue by customer by monthNeeded for concentration and revenue-quality analysis.
- Proposed addbacks / adjustmentsKnown one-time items, owner expenses, out-of-period entries.
- LOISigned or draft letter of intent, if available.
- Data-room access notesPlatform and how we'll be granted access.
- Management contacts for interviewsNames, roles, and emails for finance/ops interviews.
Questions
What is the difference between the Full and Lite scope?
Full scope covers adjusted EBITDA, working capital and proof of cash. Lite is a streamlined engagement focused on adjusted EBITDA and the key deal risks. The right choice depends on deal size, lender requirements and how much of the purchase price turns on working capital.
What do you need from the target?
Profit and loss statements and balance sheets for the last three fiscal years plus the year to date, monthly trial balances and transaction-level general ledger detail for the analysis period, and the expected deal timeline. Revenue by customer by month, the seller's proposed adjustments, the letter of intent and data room access notes strengthen the analysis.
Is a Quality of Earnings report an audit?
No. An audit expresses an opinion on whether financial statements are fairly presented under an accounting framework. A Quality of Earnings report is a diligence analysis of the sustainability and composition of earnings for a specific transaction, under an agreed scope.
Can I screen the deal before commissioning a report?
Yes. Finsider Addback is a free first-pass screen that shows what the available records support and what to ask for next.