Virtual Data Room FAQ Hub
What Is a Quality of Earnings Report?
A Quality of Earnings report, often called a QoE report, is a detailed financial analysis used in M&A to evaluate how reliable and sustainable a company’s reported earnings are.
Unlike a standard financial statement audit, a QoE analysis focuses on the economic performance of the business and the factors that may affect future earnings.
Buyers commonly use QoE reports during financial due diligence, while sellers may also commission a sell-side QoE before going to market.
The purpose is to give transaction participants a clearer understanding of the company’s underlying financial performance.
What Does a QoE Report Examine?
A QoE analysis typically looks beyond reported revenue and earnings.
The review may examine revenue recognition, recurring and non-recurring income, one-time expenses, customer concentration, gross margins, working capital, seasonality, accounting adjustments, and other factors that influence the company’s financial results.
One important area is normalized EBITDA.
A business may have expenses or income that management believes are unusual and unlikely to continue after the transaction.
The QoE process examines those adjustments and evaluates whether they reasonably reflect ongoing business performance.
Analysts may also look at revenue by customer, product, geography, or other categories to understand how stable the company’s earnings are.
Why Do Buyers Request a QoE?
Financial statements tell buyers what the company reported.
A QoE report helps them understand how those results were generated and how much of the earnings may be sustainable.
This matters because buyers often use earnings as part of their valuation analysis.
If reported performance depends heavily on one-time events, unusual accounting treatment, or a small number of customers, the buyer may view the risk differently.
A QoE can therefore influence valuation assumptions, purchase price discussions, working capital targets, and transaction terms.
What Is a Sell-Side QoE?
Sellers may choose to commission their own Quality of Earnings analysis before buyers begin formal diligence.
This can help management identify issues early, prepare explanations, and understand how buyers are likely to analyze the financial information.
A sell-side QoE can also reduce surprises later in the process.
It does not eliminate the buyer’s own diligence, but it can make the financial review more structured.
How Does a Data Room Support the Process?
QoE work requires access to significant amounts of financial and operational information.
That may include general ledger data, historical financial statements, customer records, revenue schedules, working capital information, budgets, and supporting documentation.
A structured virtual data room can help centralize those materials and manage access for accountants, advisors, buyers, and other participants.
The QoE report itself is ultimately one part of a broader diligence process.
Its value lies in improving clarity around financial performance, helping both sides understand what the earnings actually represent before important transaction decisions are made.
