Quality of Earnings

Ensure purchase price reflects value. Quality of earnings reports by our due diligence professionals explain the basis for a negotiated purchase price so you can turn transaction opportunities into successful acquisitions or sales.

We help reveal relevant financial issues and nuances by leveraging our experience and analytical skills. Our quality of earnings reports highlight overstated assets, understated liabilities and the reasonableness of cash-flow assumptions, as well as all the details of revenues, expenses and the business units generating value.

Who We Serve

Friedman’s Quality of Earnings practice group features leaders in Transaction Advisory Services, Forensic Accounting, Litigation Support and Valuation Services, as well as Federal, State and Local Tax experts. We have a broad range of financial expertise that applies to mergers and acquisitions and work on behalf of:

• Private equity firms
• Venture capital funds
• Family offices, investors, shareholders and their attorneys
• Companies pursuing M&A strategies

Our Approach

Our professionals work on both buy- and sell-side transactions and are accomplished accountants and transaction advisors. Many have Wall Street backgrounds and are experts in Generally Accepted Accounting Principles (“GAAP”) and Generally Accepted Auditing Standards (“GAAS”). They know financial statements don’t always tell the full story. We offer:

Exhaustive Analysis. Quality of earnings reports may be just one facet of the due diligence process, but we know the central role these reports play. That’s why we question and test the details of the information we receive to reveal performance opportunities and risks.

Understanding of Your Circumstances. We know that strict time constraints and cost pressures are part of the deal-making process. By understanding your needs, we deliver reports that are reliable, on-time and on-budget.

A Dependable Partner. Our senior professionals add value in every phase of your transaction, including transaction structure. We will explain our due diligence process and conclusions, share our analyses and make recommendations as necessary.

If you’re in need of quality of earnings analyses, due diligence, and valuation services, or to discuss your broader transaction-related needs, contact us today.

Each quality of earnings engagement is as unique as the company being analyzed. Our experience with transaction advisory matters combined with our investigative skills enable us to tailor a work plan that balances comprehensive analysis and reporting with the expediency needed to complete the engagement.

Our process may include:

• Evaluation of the target company’s management structure, internal financial documents (including up to three to five years of financial reports, general and subsidiary ledgers, and adjusting entries), strategic direction, current business activity and historical performance by product, customer, vendor, etc.
• Analysis of externally prepared audit or review reports, tax returns, auditor work papers, and internal control structures to recognize deficiencies or unresolved issues
• Assessment of the efficacy of significant accounting policies, including:
  • Revenue recognition for ongoing and completed contracts, including budgeted to actual revenue, cost and profit by contract and gross profit trends
  • Cost components (inclusive of outside services), cost recognition, including any one-time expenditures, costs of goods sold, trends in total costs and methodologies for accounting for variances
• Over/under billings and work-in-process (“WIP”), discounts and allowances, change orders, credits, gross profits by customer, customer concentrations and major customer wins and losses
• Scrutiny of judgmental reserves and accruals
• Verification of future growth assumptions, profitability and cash-flow projections
• Performance of forensic and investigative services to uncover or identify any non-business related or hidden activities recorded on the books
• Expert witness testimony in the event of a dispute on matters such as working capital and representations and warranties