Quality of earnings (QoE) (definition)
The diligence analysis testing whether reported EBITDA is durable, recurring, and accurately stated.
A quality of earnings review is the financial diligence a buyer (and increasingly a prepared seller) runs on an agency’s reported EBITDA: is the number real, recurring, and durable. It tests revenue recognition, contingent income treatment, add-backs, concentration, and expense completeness.
QoE is where headline numbers go to be repriced. Revenue durability matters most: retention by cohort, account concentration, producer dependence, and the mix of commission versus contingent income.
Sellers who commission their own QoE before going to market surface the problems while they can still be fixed, instead of discovering them as price reductions inside an exclusivity period.