What is a quality of earnings report?

A quality of earnings report is an accountant-produced analysis that asks whether a business actually earns what its financial statements say it earns. It works through the adjustments: owner compensation above or below market, personal expenses running through the business, one-off revenue treated as recurring, deferred maintenance, revenue recognition timing, and customer concentration that makes reported earnings more fragile than they appear. The output is usually adjusted EBITDA plus a schedule explaining every adjustment. Because valuation is typically a multiple of that number, a QoE that moves adjusted EBITDA moves the price directly. On any transaction of consequence, commission one. It is one of the few diligence expenses that reliably pays for itself.