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950 E. State Highway 114 | Suite 120 | Southlake TX 76092
(817) 481-4995

Quality of Earnings

The experts at ValueScope have decades of experience with a variety of factors affecting sustainable EBITDA and cash flow, so we are able to better assess the issues which will impact your pricing, structure, and risk of any prospective deal. Whether you need sell-side or buy-side representation, our expertise ensures that our Quality of Earnings reports go beyond the traditional assessment of the sustainability and accuracy of historical earnings and achievability of future projections. 

Quality Issue #1

Examine the key value drivers of sales growth and profit margins to determine what really drives and impedes EBITDA. Understanding these and any other value drivers requires an in-depth analysis of their contributing elements. This can be illustrated using a generic products company. 

Quality Of Earnings

Quality Issue #2

Test the Business Plan Assumptions

Test the earnings sensitivity to changes in operating and financial parameters.

Testing needs to reflect: 

  • Key metrics that drive growth and profitability
  • Cyclicality of sale and inventory buildup
  • Working Capital Needs
  • Capital requirements
  • Tax assumptions
  • Returns to Shareholders

Quality Issue #3

Balance Sheet Review for
Potential Effects on Profits

Review the balance sheet for anything relevant in understanding the company’s past and future performance. Such as: 

  • Atypical working capital
  • Inventory turn and obsolescence 
  • Receivables issues
  • Vendor payables and accruals

 

Quality Issue #4

Funding Capacity, Leverage
and Financial Structure

Review the business’ funding capital structure, return on debt and equity and income taxes. The following areas must be examined: 

  • Cash reserves and borrowing facilities
  • Borrowing costs 
  • Debt service and covenants
  • Cyclical funding needs
  • Financial leverage risk 
  • Taxation
  • Returns to shareholders

 

Related Experts

Quality Of Earnings

Erin Buck, CPA

Senior Manager

Tel: 817-251-4085

ebuck@valuescopeinc.com