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Quality of Earnings Analysis

Understanding unlocks potential—gain a clear financial story of a business and help determine the relative certainty of earnings in the future.

quality of earnings analysis

What is a Quality of Earnings Analysis?

A robust Quality of Earnings (QoE) analysis is crucial for making informed investment decisions. It offers a transparent financial view of a potential investment, evaluating the sustainability and reliability of a company’s earnings. By distinguishing between recurring and non-recurring revenue and expenses, a QoE analysis provides insights into the true economic performance and future earnings stability of a company–ensuring you invest with confidence.

Why Do Investors Need a QoE?

A comprehensive QoE analysis not only verifies the accuracy of financial statements but also identifies potential risks, unusual items, and one-time events that may affect future earnings. This information empowers you to make informed decisions on the longevity and resilience of your investments.

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Our Service Answers Questions Like:

  • What are the main sources of income, and how reliable are they?
  • Are there any big one-time costs or income that should be adjusted?
  • How do daily operations affect cash flow?
  • What adjustments show the real earnings?
  • What are the operational risks?
  • Are there concerns with revenue recognition?

Our Process:

1
Planning & Scoping
  • Define stakeholder objectives and analysis scope.
  • Identify key financial periods and metrics.
  • Highlight areas needing detailed review.
  • Align analysis with strategic M&A goals.
2
Data Collection
  • Ensure data completeness and accuracy.
  • Interviews & Discussions
3
Financial Analysis
  • Review financials for trends and anomalies.
  • Adjust earnings for non-recurring items.
  • Analyze revenue sustainability and non-operational costs.
  • Conduct ratio and margin analysis.
4
Interviews and Discussions
  • Interview management & department heads on operations and strategy.
  • Explore historical trends and future prospects.
  • Identify factors impacting earnings.
  • Validate collected data through discussions.
5
Risk Identification
  • Assess revenue recognition and concentration risks.
  • Evaluate regulatory impacts on earnings.
  • Analyze sustainability of earnings performance.
  • Identify and recommend risk mitigation strategies.
6
Finalization
  • Draft report with findings, earnings quality drivers, adjustments, and risks.
  • Offer normalized earnings view.
  • Present actionable insights and conclusions.

Why Partner with FE International?

FE International provides a dedicated, highly specialized partnership that understands the ins and outs of the lower middle market tech industry.

Since 2010, we’ve analyzed thousands of tech companies with our data-driven process, so we understand the metrics that matter when analyzing the financials of a business. Our team of licensed CFAs and CAs is specialized in international transactions with locations in New York City, London, Mumbai, Miami, and San Francisco.

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Our Services

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Quality of Earnings

Gain a transparent and accurate analysis of your target business’ reported earnings, like recurring transactions, market demand, and revenue stability. Make informed decisions with a comprehensive understanding of the financial integrity of a potential transaction.

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409A Valuations

Issue stock options and equity with confidence with FE International’s 409A valuations. Stand up to regulatory review and drive strategic decision-making with clear, defensible valuation assessments.

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Operational Due Diligence

Uncover the strengths and weaknesses of a business's operational process. Our analysis covers supply chain, logistics, procurement, and departmental efficiencies. Find the red flags and untapped potential of a target business.

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Technical Due Diligence

Bridge the gap between investors and developers with our unbiased assessment of a product’s code quality, functionality, tech stack, and logic. Identify any weaknesses in security, compliance, scalability, and other factors influencing an investment.

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