Jul 09, 2019

Quality of Earnings Report Explained (adjustments)

Hi all,

This is going to come off as a pretty basic question, but I would love some help understanding a QoE, in particular the add backs/pro forma adjustments that are made. More so from a conceptual standpoint, but also how the seller is thinking about this (e.g. add back previous transaction fees), and then how the buyer is thinking about this (e.g. wants to remove revenue from the historical period for a discontinued operation)

Ultimately, you want to show strong historical and LTM performance of the company so the seller wants to add back certain items, but obviously the buyer takes this into account when bidding so they heavily scrutinize. I think I understand it, but this is a pretty critical part of every process so it would be great to hear how people think about this workstream from both a buyer and seller's perspective.

Summarizing, everyone wants to figure out the true earnings of the business. If more efficient, feel free to pass along any reference materials that you have found helpful. Thanks so much!

Start Discussion

4 Comments

O

4y

Hey DiamondsDancing, I'm here to break the silence...any of these links help you?:

Evaluating Commercial Banks- Earnings (part 2) Evaluating Commercial Banks- Earnings (Part 2 of series) This post is the continuation of a series ... some expectation about earnings. I notice on pg40 they give some goals- I'll talk about some of ... which is going to make earning their cost of capital a bit more difficult (7-10% or so is more typical). ...
Qualities of a Great Investor only 3 of the many qualities you see in great investors so don't take this as a definitive guide ... on the qualities you need to have. This is meant to highlight some of the thoughts from the LP ... this one ranks #44. This one was originally posted 10/19/2015. If you've seen some of my other ...
2017 Investment Banking Report: 8 Key Trends to Know 2017 Investment Banking Reports focuses on the four sub-categories. We’ve highlighted the top 3 out of ... of 79 firms represented in the report. Promotions and Recognition listing, by investment bank. Data ... important evaluation of a company is what its employees say outside of work. In this report, reputation is ...
Snap Q1 Earnings at Thomson Reuters estimate an adjusted loss of 20 cents per share, wider than the 19 cents expected. ... released new features before their earnings report today. EDIT: Saw this interesting article at Seeking ... Hello monkeys, As you guys might have known already, Snap just reported its first quarterly ...
NYC Escorts are Earning over $1K/hr Catering to Wall Street’s Elite hour for satisfying the needs of Wall Street bankers. CNBC reports one escort, "Chelsea," 29, ... earning over $200,000 a year. Many in her line of work prefer to attract as many clients as possible, and ... respectful and deserving of high-quality service. Some clients treat their meetings as therapy sessions, she ...
Best city for overall quality of life? Including weather and job opportunities what do you guys think the best city to live in for banking is? to Friday, February 15, 2019- 3:55am Salary No Yes 358660 215968 266986 193869 178209 ...
2nd interview with REIT- Want me to look at Earnings Report is look at their last earnings report (specifically Portfolio Data portion) and to give my ... a REIT for an entry level analyst position. One of the things they want me to do for the next interview ...
More suggestions...

You're welcome.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

DiamondsDancing

PE

4y

Surprised this exciting topic didn't blow up

Authored by: Certified Private Equity Professional - 3rd+ Year AssociateCertified Private Equity Pro

Bullet-Tooth Tony

IB

4y

Most Helpful

DiamondsDancing:
Surprised this exciting topic didn't blow up

I think you are overthinking it. There are nuances with each QoE, but the high-level goals never change.

Both parties are trying to get to the ordinary, operating cash flow of the business. The seller wants to add back everything that is extraordinary, non-recurring or non-business. The buyer wants to include everything that is business-related or could reoccur.

Often, disagreements come down to what is or isn't expected to continue (revenue or cost) and what is or isn't a "cost of doing business".

Authored by: Certified Investment Banking Professional - Executive DirectorCertified Investment Banking Pro

Synergy_or_Syzygy

?

4y

In magni et rerum. Omnis voluptatum veritatis sint corrupti libero sint nihil. Quas deleniti nam quo quasi ut velit autem.

Magnam velit culpa ducimus beatae fugiat molestiae. Quia laborum culpa mollitia. Maiores vitae sed explicabo libero ut molestiae aut.

Nihil sint voluptatum cumque tempora doloribus rem. Sit earum nam autem mollitia vero laboriosam. Voluptatem hic pariatur aut a ut. Dolores excepturi odit eos corrupti aut molestiae.

Be excellent to each other, and party on, dudes.

Start Discussion

Career Resources