By Sergei Mochtchenkov, CFA
What a QoE tests
A quality of earnings analysis asks whether reported profit reflects the economics a buyer is acquiring. Start with monthly financial statements and the general ledger, then trace material movements to invoices, payroll, bank activity and other support. Revenue timing, customer concentration and unusual expenses matter because historical EBITDA alone does not explain whether earnings can continue.
Adjusted EBITDA bridge
An adjusted EBITDA bridge starts with reported earnings and identifies each proposed normalization separately. For every adjustment, record the amount, accounting period, rationale and supporting document. Distinguish a correction to the books from an owner expense or a prospective operating change. An unsupported add-back belongs in the questions list, not automatically in the accepted earnings figure.
What buyers and lenders use
Buyers use the findings to challenge price assumptions and identify issues for the purchase agreement. Lenders also need to understand cash conversion and repayment capacity: earnings can look strong while receivables absorb cash. Read the EBITDA bridge alongside proof of cash, working capital trends and debt or debt-like items rather than treating it as a standalone valuation.
Timing and source data
Agree the periods, entities and intended users before work begins. The core request includes monthly statements, ledger detail, bank statements, customer revenue, AR and AP aging, payroll and adjustment support. Most full engagements take 2–4 weeks after core records are available; missing reconciliations or incomplete data should be identified before committing to a deal timetable.