The report is the output of the analysis: a document setting out adjusted earnings with every adjustment reasoned, plus the working capital picture and the observations that did not become adjustments. Buyers read it closely and lenders sometimes require one.
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What is in it
A bridge from reported profit to adjusted earnings, adjustment by adjustment, each with its basis. Revenue analysis by month and by customer. Gross margin by line. A working capital analysis showing a normal level and the seasonality around it. Debt and debt like items. Then observations: concentration, unusual items, and anything the data raised that the numbers do not capture.
Quality of earnings report cost: what drives it
It is scoped rather than listed, and the scope drives the price: how many years, how many entities, whether working capital analysis is included, whether the team attends calls with the other side. Ask two firms for a written scope and price against the same brief, and ask what happens if the buyer requests an extra year.
Choosing between quality of earnings providers
Transaction experience in your sector at your size, the named team, and turnaround. A firm that does compliance accounting all year and one transaction occasionally is a different proposition from a dedicated transaction services team. Ask for two references from sellers rather than from acquirers.
Questions people ask about quality of earnings report
Does the buyer accept my report?
As a starting point rather than a substitute for their own work. Its value is in shaping the argument and finding problems early.
How long is a report valid?
Practically, a few months. A stale report gets refreshed or superseded by the buyer's own analysis.
Who commissions it more often?
Buyers, by a wide margin. Sellers commission one in competitive processes or where they know the accounts need explaining.
Is the report shared with lenders?
Frequently, where the buyer is borrowing. That is one reason a candid report is better than a flattering one: the lender's credit team reads it with the same scepticism the buyer's adviser did.