Quality of Earnings Analysis

A quality of earnings report is a routine step in the due diligence process for private acquisitions. It is generally issued by an accounting firm. A quality of earnings report assesses how a company accumulates its revenues – such as cash or non-cash, recurring or nonrecurring. This includes reviewing significant accounting policies, revenue recognition policies, revenue and profitability by customer and customer type, and components of operating expenses and cost of goods sold.