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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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Exit Planning Services

Your business is your work, your future is our responsibility. Our team provides comprehensive exit planning services to help ensure you’re ready to take the steps toward selling without leaving value on the table.

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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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