Quality of Earnings, answered

A Quality of Earnings report is an independent analysis of whether a company’s reported earnings are real, recurring, and sustainable for a new owner. It normalizes EBITDA by removing one-time and owner-specific items, tests revenue quality, ties results to cash, and sets a fair net working capital target. Buyers, lenders, and sellers use it to price and structure a deal with confidence.

An audit looks backward and asks whether historical statements were fairly presented under accounting standards. A Quality of Earnings looks forward and asks whether earnings will hold up once you own the business. A QofE analyzes at the account and transaction level rather than by sampling, and delivers actionable findings tied to price and structure rather than a formal opinion.

Cost depends on the size and complexity of the deal, the quality of the company’s records, and whether you need a focused review or a full engagement. Greenwood scopes a fixed fee up front, so there are no runaway hours and no surprises. Because our analysts are paired with AI that does the heavy lifting, you get big-firm depth without the big-firm budget. Share a few details and we will come back with a scope and a number.

A focused QofE Lite can land in about a week. A full Quality of Earnings is typically two to four weeks from the point you grant access to the data. Smaller or cleaner deals move faster; multi-entity or multi-location businesses take a little longer. We commit to a timeline up front and keep you posted throughout.

Often, yes. The smaller the deal relative to your net worth, the more a single surprise can hurt. A right-sized buyer’s report or quick review can flag the deal-breakers fast, without the time or cost of a full engagement. The question a QofE answers, whether earnings are real and repeatable, matters at every deal size.

A buy-side QofE is commissioned by the buyer to pressure-test a target’s numbers before closing. A sell-side QofE is commissioned by the owner before going to market, to surface and resolve issues on their own timeline, build a defensible earnings story, and protect price. The analysis is the same rigor; the difference is who controls it and when.

The working capital peg, also called the target, is the normal level of working capital a seller is expected to leave in the business at close so it can keep operating the day after. At close, actual working capital is compared to the peg and the price adjusts up or down for the difference. It is one of the most contested numbers in a deal, which is why setting it on a defensible, trailing basis matters.

Proof of cash ties reported revenue and expenses to the actual cash that moved through the bank across the review period. It is one of the most reliable tests of whether the financials reflect economic reality, and a fast way to catch misstatement or revenue that was recognized but never collected. It is a core part of a thorough Quality of Earnings.