Evolution of Quality of Earnings
Quality of earnings (QoE) is a term that refers to the overall health and sustainability of a company’s earnings. It is typically evaluated as part of the due diligence process in a merger or acquisition (M&A) transaction, but is distinct from due diligence itself.
Due diligence is the process of thoroughly evaluating a company’s financial, legal, and operational aspects in order to assess the potential risks and benefits of an M&A transaction. It typically involves reviewing a wide range of documents and information about the company, including financial statements, contracts, and other legal documents.
QoE is concerned specifically with the quality and sustainability of a company’s earnings. It involves examining the factors that contribute to a company’s earnings and assessing their stability and predictability. This may include evaluating the company’s revenue streams, costs, and profitability, as well as assessing the quality of its assets and liabilities.
QoE analysis is typically conducted as part of the due diligence process, but is focused specifically on the company’s earnings and is designed to provide a detailed understanding of the drivers of those earnings. It is an important consideration in M&A transactions, as the quality of a company’s earnings can have a significant impact on its value and long-term performance.
How we help
Our integrated transaction team includes members from financial, tax, and advisory backgrounds. We provide industry professionals who know your business and the valuation based on current market analysis and transaction experience. We will share that knowledge upfront and manage the process with you from the initial valuation discussions, through to the signing of an agreement. You will understand what’s ahead to mitigate common challenges and increase the success rate of closing.
We provide you a detailed project plan to work through all logistics and help you manage the entire process.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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