Quality of Earnings
The TS work-product that bridges reported EBITDA to a defensible run-rate figure a buyer can underwrite.
Also known as: QoE
One-line definition
Quality of Earnings (QoE) is the schedule that walks from reported EBITDA to adjusted EBITDA, category-by-category, with supporting evidence.
Why it exists
Reported financials are backward-looking and subject to idiosyncrasies: one-off gains, cost-saving initiatives that haven't shown up yet, accounting anomalies. A QoE schedule re-expresses those into a run-rate view the buyer can model.
Anatomy of a QoE schedule
- Reported EBITDA (per audited accounts).
- Non-recurring items removed (one-off legal costs, M&A fees, etc.).
- Run-rate adjustments (annualising headcount, repriced contracts).
- Pro-forma adjustments (hypothetical full-year impact of acquired businesses, new stores, etc.).
- Adjusted / normalised EBITDA.
Interview angle
A TS interviewer asking "what is QoE?" isn't testing vocabulary — they're testing whether you can walk a bridge. Always answer with the schedule, not the acronym.
Related terms
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortisation — the most cited profitability proxy in M&A.
Net Debt
The gap between Enterprise Value and Equity Value in a deal — gross debt minus cash, plus a long list of debt-like items.
Net Working Capital (NWC / WCR)
Net Working Capital (NWC), also called Working Capital Requirement (WCR) — the normalised working capital a target needs to operate, and a direct lever on the M&A purchase price.