Quality of Earnings Analyses

The QOE report helps the buyer and seller understand key company operating metrics, such as QOE ratios, revenues, gross margins, cash flow, adjusted EBITDA, and working capital. It bridges the knowledge gap making both buyer and seller comfortable completing the transaction.

Deep Dive Beyond Financial Statements

• QOE Historical Ratio Analyses:

  • QE Ratios: Net Cash Flow from Operations divided by Net Income.

  • Quantify quality income and compare to non-cash accounting profits arising from policy changes, foreign exchange fluctuations, allowance and reserve estimate changes, and depreciation estimates.

                 Ratio > 1 - higher quality earnings; ratio < 1 - lower quality earnings

• Additional Key Ratios: quick ratio; AR and inventory turnover; AP days outstanding, sustainable EBITDA margin; employee turnover.

  
  

• Revenue patterns and growth, such as anomalies, seasonality, customer concentration, and product concentration.

  
  

• Gross margin trends and COGS variables.

  
  

• Expense Adjustments: 1) additional recurring costs after the transaction; and 2) expenses not required after the transaction, such as duplicate overhead for consolidated operations or above-market salaries.

  
  

• Working capital requirements going forward, receivables, inventory, reserves, and liability recognition.

  
  

• Identify and analyze potential indebtedness not on balance sheet which may reduce the purchase price, e.g., fixed asset purchase commitments, litigation matters, and income and sales tax audits.

SP&H Advantages

Experience: Est. 1992, 200 years of combined experience, and over 4,000 projects completed, at any time we have about 200 active matters.

Resourceful: We provide executive level hands-on advice with endless research capabilities - databases, publications, data collection and surveys, and field studies.

Results: A unique culture of relentless drive to find exacting solutions for clients; we deliver ROI for our clients; they profit from our work.