FinanceDiligence
Quality of Earnings (QoE)
Also known as: QoE, quality of earnings analysis, EBITDA analysis
A detailed accounting analysis commissioned by the buyer (or sometimes the seller) to verify the sustainability and accuracy of reported EBITDA. Often uncovers adjustments that change the final purchase price.
WHY IT MATTERS
A QoE is a forensic accountant's examination of the P&L. They trace every revenue stream, verify every cost, and scrutinize every adjustment the seller claims as an add-back. The output is an "adjusted EBITDA" that may be materially different from the seller's stated number. Sophisticated sellers commission their own QoE (sell-side QoE) BEFORE going to market to identify issues and get ahead of them. Founders who skip this end up renegotiating in the middle of buyer-side diligence, almost always at a lower price. When an earnout uses EBITDA calculated via "the buyer's QoE process," the seller has handed the buyer control over the number.