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Patia, Bhubaneswar, Odisha - 751017, India
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Quality of Earnings Report (QoE)

Quality of Earnings Report (QoE)

The generation of the Quality of earnings (QoE) Report is an important step of the acquisition due diligence process. Even if accounting records present large earnings for a business, that may not be a sufficient indication of the company’s financial soundness. A QOE report goes deeper into accounting records and tries to identify the sustainability of the reported earnings.

A QOE report differs from an Audit. The purpose of the Audit is only to check if accounting records are in compliance with Generally accepted accounting principles (GAAP) and if any material errors exist in the reported financials. Whereas a QOE report is a deeper level of analysis, it analyses past trends in Revenues and major expenses, Cash & Non-cash component of earnings, abnormalities in reported financials, accounts receivables, etc., with the intention of identifying the level of sustainability and adequacy of reported earnings.

A pre-requisite to judging the Quality of earnings is higher quality financial reports. If financial reports are not GAAP compliant and do not provide decision useful information, then it is not possible to judge earnings quality.


Preparing a QOE report is an important step of the due diligence process for private acquisitions. A QOE report helps in identifying potential risks related to the target company, which may not be evident from reported financials. It also helps in accurate valuation exercises.

There is no standard format for a QOE report. However, the following metrics/factors are usually analyzed in detail:

  • Historical trends in revenues and operating & non-operating expenses.
  • The proportion of cash and credit revenues.
  • How much has the company generated cash from operation (CFO) relative to reported EBIT or Net Income?
  • Abnormal or Exceptional items – E.g., if a company reports a large abnormal income/expense every 3 to 4 years, then such an item is not abnormal anymore.
  • Cyclicity or seasonal effect in earnings, among other factors.
    Some quantitative models, such as Beneish Model and Altman Z-Score, can also be used to identify earnings manipulation.

Indicators of low earnings quality:

  • An increase in net income without a corresponding cash flow increase.
  • Large non-recurring income or expense items.
  • Transactions with related parties.
  • Earnings derived from non-recurring one-off activities.
  • Extremely high Accounts receivable balance.

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    • Suite - 210, B Block, Nature's Crest, Patia, Bhubaneswar, Odisha - 751017, India
    • India #: (+91) 674-358-1502
      US #: (+1) 585-577-7716
    • [email protected]
    Best Quality Service Competitive Price Quick Turnaround Reliable & Dependable Super Support

    Quality is our first priority. We always provide our clients with world-class services with a 99.99% quality guarantee and keep improving the process. Our quality checking process pass-through a 3-step checking process, reducing the error chance to zero percent.

    Our process improvement continuously checks for model and report upgradation, change or application of new industry or legal rules in the valuation and analysis process. Our existing clients are very much satisfied with our quality services.

    We work on a low-price model without compromising the quality of the work. We have a talented pool of MBA, CVA, CPA, CFA and other finance, accounting, and economics graduates to maintain the quality.

    Since we operate from India, we benefit from the labour arbitrage and pass the same befit to our clients by providing quality services at 60-70% less than their in-house operating cost.

    We always try to deliver projects as soon as possible after all required work and quality checks are done.

    As soon as we receive a project request from the client, we add that to our project pipeline and set the final deadline. Then we review and request the missing documents/data from the client. In the meantime, our operation manager assigns respective tasks to respective analysts based on their competencies and sets a deadline for each. After the completion, the QC team takes over the project and checks for errors in 2-3 steps. After confirmation, our managing director quickly looks at the project and then delivers it to the client before the final deadline.

    We are a reliable and trusted offshoring partner for the client. We sign the NDA and NCA when a contract is finalised between the client and us. We work for the client's best interest in a very transparent way, for which clients rely and depend on us for their part/whole process for the long term without any confusion.

    We provide our endless dedicated support to our clients 24/7, whether related to a project, pricing, time or audit support. This is why clients have loved to partner with us for a long time. We provide support via online video meetings like zoom or Microsoft teams or skype, voice calls, Whatsapp and our online chat agent on our website.

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    Few appreciation and motivation from our clients for our best quality and timely work!

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