Quality of Earnings Report 2017-12-05T16:19:16+00:00

Quality of Earnings Reports

All too often we hear of transactions that did not work out as planned.

The ability to identify critical trends and understand what is behind the numbers can have a real impact on the transaction value and its ultimate success.

The primary objective of a quality of earnings report is to assess the sustainability and accuracy of historical earnings as well as the achievability of future projections. A QOE report that broadens the scope to include a review of the company’s integrity, management assessment, and an operational overview may lend critical information on the enterprises ability to generate future earnings.

A well-researched and developed QOE report goes beyond an accounting review of the financial statements. It looks at whether an enterprise and proposed transaction have the necessary financial, human, capital, and other resources to execute the strategic plan.

QOE report may cover a wide range of areas including; management, operational, marketing and financial matters. Financial due diligence (often referred to as “accounting” due diligence) is focused on providing potential investors with an understanding of a company’s:

  • sustainable economic earnings,
  • historical sales and operating expense trends,
  • historical working capital needs, and
  • key assumptions used in management’s forecast.

Complete article

Do your Quality of Earnings report cover?

Revenue

Is the revenue real?
  • Are sales real
  • Discounts and rebates?
  • Customer concentration?
  • Margins by customer
  • Margin by products
  • Non-recurring revenue?

Non-recurring costs

including pensions
  • Are pension costs recorded
  • Nonrecurring items
  • Seller add backs real
  • unrecorded obligations
  • Capital items
  • accounting systems

Forecasting / business planning

does the company use

activity based planning

  • sales by customer product
  • aliening costs to revenue
  • changes in working capital
  • this is one of the most critical documents

Non financial items

management resources culture

Culture can be critical

Receivables

understanding the incoming cash
  • increase in sales or slow collections?
  • sales cut off done correctly?
  • What is the AR turn trend
  • buying future sales
  • reaging

Inventories

changes will impact margins real or otherwise
  • salable?
  • costing build up
  • inventory turns
  • obsolescence
  • resources
  • future earnings

Operating assets

Tired or full of youth
  • resources to meet growth
  • efficient or outdated
  • aggressive capitalization
  • cash forecast

Obliagations

are they all recorded
  • smooth out earnings
  • accruals properly recorded
  • warranty

Are systems in place for proper recording of liabilities

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This Sliding Bar can be switched on or off in theme options, and can take any widget you throw at it or even fill it with your custom HTML Code. Its perfect for grabbing the attention of your viewers. Choose between 1, 2, 3 or 4 columns, set the background color, widget divider color, activate transparency, a top border or fully disable it on desktop and mobile.

<p><img class=”alignleft wp-image-11846 size-full” src=”http://capitalrestoration.com/wp-content/uploads/2017/12/gloucester-260-by-250.jpg” alt=”” width=”250″ height=”264″ />CRL is a go to experts, known for providing strategic financial expertise, to companies in transition.</p>