Quality of earnings: what it is and how it affects your price

A quality of earnings (QoE) report is an accounting firm's analysis of whether your adjusted EBITDA is real and repeatable. PE buyers almost always commission one before closing; if it knocks $100,000 off EBITDA and they pay 6x, your price just fell $600,000.

Updated 2026-09-23 · 1 source · By the TradeExit Guide team

What a QoE tests

AreaTypical finding that cuts price
Add-backsUndocumented owner perks or "one-time" costs that recur
RevenueCash vs accrual timing, deposits recognized too early
MarginsJob costing that hides unprofitable work
Working capitalA normal level higher than the buyer assumed
PayrollOwner or family pay below market; misclassified contractors
Customer concentrationTop customers larger than presented

QoE vs audit vs review

An audit gives an opinion on whether financial statements follow accounting standards. A QoE is a diligence report on sustainable earnings - it is what the price is built on. Many Main Street deals never have either; lenders rely on tax returns. Deals with PE buyers or larger strategic acquirers usually include a buyer-side QoE.

Should you get a sell-side QoE?

Worth considering once EBITDA is roughly $1M+ and you expect PE interest: it finds problems while you can still fix or explain them, supports your add-backs, and makes buyers’ diligence faster. Start by recasting honestly with the SDE calculator.

Know your number first

Sourced range for your trade in 60 seconds, no email needed.

Get my valuation range

Frequently asked questions

What is a quality of earnings report?

An accounting analysis of whether a company’s adjusted earnings are accurate, sustainable and properly adjusted, used to support the purchase price.

Who pays for the QoE?

The buyer pays for its own; a seller pays for a sell-side QoE.

Is a QoE the same as an audit?

No. An audit opines on GAAP compliance; a QoE analyzes earnings quality for deal pricing.

Sources

  1. IBBA / M&A Source / Pepperdine Market Pulse, Q2 2026 highlights (accessed 2026-09-23)