Quick answer
A quality of earnings report is transaction-focused financial diligence. It tests how reported earnings were produced, which adjustments are supportable, how working capital behaves, and which financial risks affect price, financing, and the purchase agreement. It is not the same engagement as an audit and does not replace legal, tax, operational, or commercial diligence.
There is no responsible national price recommendation on this page. Provider fees and deliverables change with scope, data quality, industry, entities, locations, accounting basis, deadline, and transaction size. Obtain current written proposals against the same scope.
Scope the work before comparing quotes
| Workstream | Evidence and output to request |
|---|---|
| Revenue | Monthly detail, recognition, cutoffs, recurring/nonrecurring split, customer ties |
| Adjusted earnings | Reported-to-adjusted bridge with support for every add-back |
| Margin | Product, service, customer, location, labor, and vendor drivers where relevant |
| Working capital | Receivables, payables, inventory, deferred revenue, seasonality, and target method |
| Cash conversion | Earnings-to-cash bridge, capex, taxes, debt, and timing |
| Concentration | Customer and supplier exposure, churn, contracts, and post-period events |
| Data quality | Source systems, reconciliations, missing records, management adjustments, and limitations |
Ask each provider to state periods covered, entities, procedures, reliance limits, deliverable format, revision process, management access, timing, exclusions, and total fee assumptions.
Connect findings to the deal
A finding has value only if the deal documents and decisions can respond. Map adjusted earnings to valuation and financing assumptions. Map working-capital analysis to the purchase agreement's target, definitions, measurement rules, true-up, dispute process, and payment. Map customer or supplier concentration to consent, assignment, termination, representations, closing conditions, and indemnification.
Do not use a universal add-back percentage as the trigger for a full report. The buyer, lender, CPA, and counsel should scope diligence from the transaction's exposure, evidence quality, financing, and decision needs.
Evidence request
Request monthly financial statements, general ledger, bank reconciliations, tax returns, revenue by customer, receivables and payables aging, inventory detail, payroll, owner compensation, add-back support, debt, capex, budgets, and material contracts. Adapt the request to the industry and accounting system.
Where Inkvex fits
Inkvex does not perform a quality of earnings analysis. It can review the uploaded LOI, purchase agreement, seller note, lease, and material contracts, then quote and organize terms that determine whether financial findings can change price, working capital, closing, assignment, or remedies. That is a first-pass for counsel, not financial diligence.
Inkvex provides legal information, not legal, accounting, tax, lending, or investment advice. Use qualified transaction professionals for the final diligence scope and decisions.
Compare proposals on one scope sheet
Before comparing fees, give each provider the same business profile and questions: revenue model, accounting basis, locations, customer concentration, owner involvement, inventory, working capital, payroll, related-party activity, and available records. Ask which periods and entities are covered, which procedures will be performed, who performs them, what deliverables and calls are included, and what triggers a scope change.
A low quote may exclude working-capital analysis, balance-sheet testing, customer work, or a quality review. A high quote may include work the buyer does not need. Current price must be confirmed directly with each provider; vendor pages and old proposals do not establish a national market rate.
Connect findings to the purchase agreement
For each adjustment, identify the source record, recurring rationale, tax treatment, working-capital effect, debt effect, and purchase-price implication. Reconcile normalized earnings with the LOI model, lender case, valuation, and APA definitions. A QoE report informs the financial record; it does not replace legal, tax, operational, environmental, or commercial diligence. Preserve unresolved items in the deal issue list and assign them to the relevant advisor.
Review the evidence behind adjustments
For each proposed add-back or normalization, ask for the ledger accounts, invoices, payroll, contracts, bank evidence, and explanation of why it is nonrecurring or would change under buyer ownership. Separate arithmetic verification from judgment about future operations. Customer concentration, deferred revenue, inventory, and working capital may require procedures outside a narrow earnings analysis.
Create an unresolved-items schedule showing amount, evidence received, owner, effect on valuation or purchase agreement, and next step. That schedule helps the buyer decide whether to adjust price, change working capital mechanics, request protection, expand diligence, or accept the uncertainty with a documented reason.
Go deeper
Read the guide, then move into the real workflow, pricing, audience page, and glossary that support the next decision.
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This article is for informational purposes only and does not constitute legal advice. For high-stakes agreements, consult a qualified attorney.