Quality of Earnings Reports for Buyers and Sellers
Understand the earnings behind the deal before you commit.
An attractive earnings figure is only a starting point. Lion’s Quality of Earnings report examines normalized EBITDA, the records supporting revenue and cash, historical working capital and financial risks. Put the financial story behind the transaction to the test before moving toward a purchase or bringing your business to market.
Texas-based Lion Business Advisors. Serving business owners nationwide.
- Proof of Cash, Proof of Revenue
- Working Capital PEG Tie-Out
- EBITDA Bridge
- Board Ready Materials
What is a quality of earnings report?
A quality of earnings report, or QoE, is transaction financial diligence that examines the support for a company’s reported and normalized earnings. Lion’s report addresses the agreed financial periods and records, identifies material findings and unresolved differences, and helps buyers and sellers focus on financial questions relevant to the deal. A QoE does not determine what the business is worth.
Bring evidence to the acquisition or sale discussion
For buyers
Evaluate the earnings supporting the asking price, question proposed adjustments and identify financial issues before moving further toward closing.
For sellers before you sell
Identify gaps in the earnings story and prepare support for adjustments and financial trends before buyers raise those questions.
For the transaction
Use the findings to inform discussions about earnings, cash flow, working capital and matters that require additional diligence.
When to order a Quality of Earnings report
- You are evaluating an acquisition and need a closer examination of earnings and the supporting records.
- You are preparing to sell and want to address financial questions before approaching buyers.
- The transaction involves material add-backs, accounting judgments, customer concentration or working capital complexity that warrants focused financial diligence.
What your QoE Report includes
Reported-to-normalized EBITDA bridge
Evaluation of proposed owner-related, non-recurring and other earnings adjustments, their supporting records and their implications for recurring performance.
Proof-of-revenue schedules
Analysis connecting reported revenue to the agreed financial records and underlying activity, with material differences and information gaps identified.
Proof-of-cash schedules
Reconciliations of the agreed financial records to bank activity for the covered periods, distinguishing transfers, financing and other non-revenue movements where supported.
Historical working capital analysis
Review of relevant operating receivables, inventory and payables, including trends, seasonality and material classification issues that inform transaction discussions.
Revenue trends and financial risks
Analysis of revenue and margin trends, customer concentration, material accounting practices and identified financial risks within the agreed scope.
Written findings and supporting analysis
A report identifying the information reviewed, material assumptions, supported adjustments, unresolved differences and limitations. Financial periods and required access are confirmed in the engagement.
Look beyond reported profit to understand the cash picture
A business can report growing profit while receivables increase and customer collections slow. Reviewing earnings alongside cash support and historical working capital helps you identify questions about the operating capital the business needs. EBITDA alone does not explain the timing of cash available after a transaction.
A QoE examines the financial foundation behind earnings. A business valuation estimates potential business value. Order a valuation when your main question is what the business could be worth; the reports can complement each other when the transaction warrants both.
Quality of earnings report pricing
| Company annual revenue | Report fee |
|---|---|
| $0–$5,000,000 | $9,995 |
| $5,000,001–$15,000,000 | $12,500 |
| $15,000,001–$30,000,000 | $14,995 |
| $30,000,001 and above | $19,995 |
How to order and what happens next
- Start your QoE orderIdentify the company, whether you are the buyer or seller, the transaction stage and any lender or deadline requirements.
- Confirm scope and accessLion confirms the agreed periods, procedures, company authorization, report use and fee before accepting the engagement and payment.
- Provide records for analysisAfter signing and full payment, provide the agreed records. Work begins when access is authorized and Lion accepts the complete intake.
- Receive the findingsReceive the written report and supporting analysis. Use the findings to address financial questions and identify where additional diligence is needed.
The delivery schedule is agreed after scope, record availability and required access are assessed. Missing information, company response delays or agreed scope changes may extend timing. Discuss transaction and lender deadlines before acceptance.
What to have ready
- Monthly financial statements, trial balances and general ledger detail for the agreed periods, plus relevant tax returns.
- Included bank statements, reconciliations, deposit detail and support for revenue and non-operating cash movements.
- Customer sales, material contracts, payroll, proposed add-backs and related-party transactions.
- Receivable and payable aging, inventory or work-in-process detail, accruals and other working capital support.
Quality of Earnings Report questions and answers
Is a quality of earnings report a business valuation?
No. A QoE examines the financial support for reported and normalized earnings, revenue, cash and working capital. It does not provide a business value conclusion or choose the appropriate valuation multiple. A separate valuation may use QoE findings as an input.
Is this report for buyers or sellers?
Both. Buyers use it to examine the financial basis of a contemplated acquisition. Sellers use it before they sell to identify financial questions and prepare support for their earnings story. The intended use, report recipients and scope are established in the engagement.
How is my QoE price determined?
The fee follows the company’s last completed fiscal year revenue band shown above. For an acquisition, use the target company’s revenue. Lion confirms the scope and fixed fee before acceptance and payment. The fee does not depend on favorable findings or a completed deal.
Does a QoE replace an audit or all buyer diligence?
No. This is transaction financial diligence, not an audit or assurance opinion. It does not replace legal, tax, operational or other specialist diligence. A seller’s report also does not prevent a buyer or lender from performing additional procedures.
What does proof of cash establish?
It reconciles the agreed financial records to bank activity for the covered periods and identifies material differences. It is not independent confirmation directly with banks or customers, and it does not authenticate every underlying transaction or guarantee that all errors or fraud will be detected.
Will the report satisfy my acquisition lender?
Acceptance is lender-specific. Before ordering, identify any required procedures, periods, preparer qualifications, independence and reliance terms. Lion confirms whether the proposed scope can meet the identified requirements. No financing approval or acceptance by every lender is promised.
How long will the report take?
The delivery schedule is confirmed at engagement based on the agreed scope, periods, access and record readiness. Timing begins only after the engagement is signed, payment clears, company access is authorized and Lion accepts complete intake. Raise closing deadlines before acceptance.
Can I share the report with another party?
Report use and distribution follow the engagement and the company’s disclosure restrictions. Sharing with a buyer, seller, investor or lender requires the agreed permission, and third-party reliance requires separate written terms. Identify intended recipients before work begins.
When is a QoE not the right first step?
If you primarily want an estimate of business value or are exploring an exit several years away, start with a valuation discussion. If essential records are unavailable, first confirm whether the proposed diligence can be completed. Transaction risk and buyer or lender requirements may still justify a QoE.
When do I pay, and is the fee refundable?
The agreed fee is due in full before work begins and is non-refundable under the accepted engagement, except as required by law. Lion confirms scope and access requirements before accepting payment. A withdrawn offer, seller withdrawal or failed transaction does not make the fee contingent on closing.
Put the financial story behind the deal to the test
Order a Lion Quality of Earnings report for your acquisition or sale preparation. Begin with a defined scope and the records needed to support a more informed transaction decision.
