QUALITY OF EARNINGS REVIEW SERVICES

Details matter. A Quality of Earnings (QofE) review is a critical step in the due diligence process that can help improve the quality of a business acquisition by providing a more accurate and complete picture of the target company’s financial health. Gray Strategic Partners conducts detailed QofE reviews for clients seeking a clear view of the true financial state of a potential acquisition.

The primary goal of a QofE review is to identify and assess potential risks or issues that could impact the value of the business being acquired. These problems can include inconsistent revenue recognition practices, overstated or understated assets or liabilities, or improperly capitalized expenses. Finding and quantifying such issues can help the acquiring organization negotiate a better deal, or perhaps even choose to avoid the acquisition altogether.

A well-planned, meticulously executed and clearly reported QofE review can help improve the business acquisition process in multiple ways:

• Evaluating the sustainability of earnings. A QofE review can help the acquirer determine whether the target company’s reported earnings are sustainable over the long term. This includes assessing the quality of the target company’s revenue streams, evaluating its historical and project cash flows, and analyzing the impact of potential market or industry changes.
• Assessing the accuracy of financial reporting. A QofE review can help identify any inaccuracies in the target company’s financial reporting, such as errors or omissions in financial statements. This can lead to a more informed decision about the true value of the business.
• Enhancing post-acquisition integration. By providing the acquiring company with a better understanding of the target company’s financial operations, a QofE review can help facilitate a smoother post-acquisition integration. For example, by identifying potential cost savings or revenue synergies that can be achieved through the acquisition.

A quality of earnings review attempts to cut through the confusion to present a true and meaningful representation of a company’s cash flow. To enhance our quality of earnings reports, we also assist with and document the projected working capital requirements of the business to inform the buyer so that proper financing is in place post-acquisition.