What a QoE report contains
A QoE report is written for the buyer, its lender or, in a sell-side engagement, the seller. Each part answers a question that ends up as a number in the purchase agreement: adjusted EBITDA for price, normalized working capital for the peg, and debt-like items for the deduction from price.
Most reports follow a similar order, although there is no single mandatory format.
Main parts of a QoE report
IllustrativeEach part produces a figure or finding that feeds the price or the purchase agreement.
The parts, one by one
| Part | What it shows | Typical output |
|---|---|---|
| Executive summary | The key findings, adjusted EBITDA and the issues that matter most for price and terms | A few pages with the main schedules |
| Quality of earnings | A bridge from net income to reported and adjusted EBITDA, with each adjustment explained and supported | Adjusted EBITDA by period |
| Revenue and margin | Revenue by customer, product and period, pricing and margin trends, concentration | Quality of revenue findings |
| Net working capital | Monthly working capital and what level is normal for the business | Normalized level and proposed peg |
| Net debt and debt-like items | Borrowings and other obligations that behave like debt | Items deducted from the price |
| Proof of cash | Bank statements reconciled to the books and to reported revenue and expenses | Support for reported earnings |
What a QoE report looks like
The report opens with an executive summary of a few pages: the findings, the adjusted EBITDA bridge and the main risks. Detailed schedules, charts and commentary follow for each area, normally with monthly data for two to three years and the last twelve months.
The detail is what lets the buyer, its lender and the seller trace every adjustment back to a document.
Worked example
Alder Creek’s report opens with reported EBITDA of $5.00 million and adjusted EBITDA of $4.60 million, followed by the five adjustments that explain the difference. Later sections show the revenue by customer, the monthly working capital and the debt-like items identified.
Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.
Why it matters in a deal
The report is the evidence behind the price and the key terms of the purchase agreement. A report that covers every part, and supports each figure with documents, leaves less to argue about at the negotiating table.
What to check in a report
- Adjustments with no supporting documents
- No proof of cash, or a proof of cash that covers only part of the period
- A working capital peg that ignores seasonality
- Findings in the narrative that are not reflected in the schedules