Glossary · Valuation and finance
Quality of earnings
Also called QoE, quality of earnings report
Definition
A quality of earnings (QoE) report is the core output of financial due diligence. Accountants rebuild EBITDA from the underlying data, remove one-off and non-recurring items, and test whether the earnings are sustainable. Buyers and lenders use it to agree the figure the price is based on.
Where quality of earnings comes up
On this site, in our guides and in the conversations we've written up.
Related terms
EBITDA Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on. Financial due diligence Diligence on the numbers: earnings, working capital, debt and cash flow behind the headline figures. Net working capital Current assets minus current liabilities: the cash tied up in running the business day to day. Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. Earn-out Part of the price that is only paid later if the business hits agreed targets after the sale. Escrow Money held back from the price by a third party, released later if no claims are made. Leveraged buyout An acquisition paid for largely with borrowed money, secured on the target company itself. Locked box A way of fixing the price on a past balance sheet date, with no adjustment after closing.