What Is a Quality of Earnings Report? A 2025 Guide for Buyers and Sellers

In any business acquisition, the numbers on a profit and loss statement never tell the full story. That’s where a Quality of Earnings (QofE) report comes in. Whether you’re a buyer looking to validate financials or a seller preparing for an exit, understanding QofE is crucial to making a clean, confident, and well-informed deal.

What Is a Quality of Earnings (QofE) Report?

A Quality of Earnings report is a deep financial analysis that goes beyond surface-level numbers. It assesses how accurate, sustainable, and reliable a company’s earnings are—separating one-time gains from recurring revenue, validating addbacks, and identifying red flags in the financials.

Unlike a standard audit, which looks at compliance and accuracy, a QofE report is designed to help acquirers understand the true earning power of a business.

Why Does a QofE Report Matter in M&A?

Whether you’re buying or selling, the QofE plays a critical role in negotiations and risk assessment.

For buyers:

• Verifies the integrity of revenue and EBITDA
• Detects inflated earnings or unsustainable income
• Provides leverage to negotiate a fair price or restructure a deal
  

For sellers:

• Builds trust and transparency with buyers
• Defends the valuation with clean, documented adjustments
• Speeds up the due diligence process
  

What’s Included in a QofE Report?

A high-quality QofE report typically covers:

• Revenue analysis: Recurring vs. one-time income, customer concentration, seasonality
• EBITDA normalization: Adjusting for owner compensation, personal expenses, and non-recurring costs
• Working capital review: Ensuring the business has adequate resources to operate post-close
• Accounting practices: Reviewing accrual methods, cutoffs, and revenue recognition
• Reconciliation checks: Comparing tax returns, P&L, and bank statements for discrepancies
• Addbacks and adjustments: Evaluating the validity of financial “addbacks” that affect valuation
  

Who Prepares a QofE Report?

QofE reports are typically prepared by independent third-party firms with experience in M&A financial due diligence, such as specialized advisors or transaction-focused CPA firms. At VASL, our team blends accounting precision with deal-savvy insights to produce QofE reports that help you make smarter decisions—fast.

When Should You Order a QofE Report?

• Buyers should initiate a QofE once an LOI (Letter of Intent) is signed.
• Sellers should consider a QofE before going to market, to catch issues early and defend their valuation.
  

The earlier the report is started, the more time you have to react, renegotiate, or optimize.

How VASL Supports You With QofE

Our team has delivered over 150 QofE reports for buyers, sellers, and investors across industries—from eCommerce and SaaS to construction and healthcare. We dig deeper than surface-level financials and deliver:

• Easy-to-read insights
• Accurate EBITDA adjustments
• Clear risk flags and deal considerations
• Fast turnaround to keep deals moving
  

The Bottom Line

A QofE report isn’t a luxury—it’s your first layer of protection against bad deals, inflated earnings, and post-close surprises. Whether you’re preparing to buy or sell, this report gives you the financial clarity you need to move forward with confidence.

Want to learn more about how a QofE can strengthen your deal?

📩 Email us at saman@vasl.team

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Looking for transaction support, financial due diligence, or expert M&A advisory? Visit our M&A Services page to explore how VASL helps buyers and sellers close better deals, faster.