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How do we best focus on “quality” in quality of earnings reports?

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: What Drives EBITDA?

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 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
  • Cash reserves and borrowing facilities
  • Borrowing costs
  • Debt service and covenants
  • Cyclical funding needs
  • Financial leverage risk
  • Taxation
  • Returns to shareholders
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How Marshall & Stevens can help with Quality of Earnings

Our Quality of Earnings team collaborates with our internal multi-disciplinary professionals to provide the value analyses and fresh independent opinions to fiduciaries, financing sources and investors for public and private company transactions.

The Marshall & Stevens Difference

Marshall & Stevens provides Fairness and Solvency Opinions, valuation analyses, investigative accounting, and expert witness services to assist public and private clients with their important transactions and litigation matters.

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Offices
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Unique Professional Certifications
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firms acquired since 2023
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years (founded 1932)
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Staff with tenure of 9+ years
Quality of Earnings Contacts at Marshall & Stevens