Quality of earnings (QoE) report
Last updated
Quick Answer
A quality of earnings report tests whether a target's reported earnings are real, recurring, and correctly stated — it is a consulting engagement, not an audit.1,2
What it is
Three things carry most of the work: adjusted EBITDA, where each proposed add-back is tested for whether it is genuinely non-recurring and correctly sized; proof of cash, which ties recorded revenue to money that actually arrived; and working capital, which establishes the normal level the peg will be set against. No explicit professional standards govern its scope or its deliverable.1,2
Operational context
What good looks like
Why It Matters
This is the document that moves price between the letter of intent and signing, and the buyer's job is to read it rather than receive it. Whether the buyer may rely on a QoE the seller commissioned is a contract question — a reliance letter — not a professional standards question.1
Term Family
Related concepts
Frequently Asked Questions
What is Quality of earnings (QoE) report in venture capital?
Three things carry most of the work: adjusted EBITDA, where each proposed add-back is tested for whether it is genuinely non-recurring and correctly sized; proof of cash, which ties recorded revenue to money that actually arrived; and working capital, which establishes the normal level the peg will...
Why is Quality of earnings (QoE) report important for startups?
Understanding Quality of earnings (QoE) report is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.T3-25 — Warren Averett (CPA firm)What Happens in a Quality of Earnings Analysis?Warren Averett (CPA firm)(A quality of earnings report tests whether a target's reported earnings are real, recurring, and correctly stated — it is a consulting engagement, not an audit.)secondary · T3 · diligence-qoe · document
- 2.T3-26 — The Bonadio Group (CPA firm)Common Quality of Earnings AdjustmentsThe Bonadio Group (CPA firm)(A quality of earnings report tests whether a target's reported earnings are real, recurring, and correctly stated — it is a consulting engagement, not an audit.)secondary · T3 · diligence-qoe · document
- 3.T3-30 — Midwest CPAWhat Is a Quality of Earnings Report?Midwest CPA(A quality of earnings report tests whether a target's reported earnings are real, recurring, and correctly stated — it is a consulting engagement, not an audit.)secondary · T3 · diligence-qoe · document
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