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QoEAdvanced·12 min·10 checks

Quality of earnings

Reported EBITDA is an opening position. This is how it gets tested.

  • Finance
  • Financial analysis
  • Investing course
  • Accounting course
  • Certification

Every multiple in every valuation is applied to a number, and a quality of earnings analysis is the work of finding out whether that number is real. It rebuilds reported EBITDA into a figure a buyer could expect to earn again next year: adding back what will not recur, removing what will not last, and normalising anything the current owner arranged for reasons that have nothing to do with the business. Because the result is multiplied at the deal price, a small adjustment is never small. Move EBITDA by 1.7 in a deal struck at 8.0× and you have moved the price by 13.6.

Take the courseFree. One attempt per check, saved as you answer.

What this course covers

  1. 01Start from a reliable earnings base
  2. 02Test what management calls non-recurring
  3. 03Normalise to arm's length terms
  4. 04Look for earnings that are ending
  5. 05Separate debt-like items and the working capital peg
  6. 06Convert the bridge into price

What you will be able to do

  • Buy-side diligence on any acquisition priced off an earnings multiple
  • Sell-side preparation, where finding the adjustments first means defending them rather than conceding them
  • A founder-owned or family-owned target, where personal and business costs are routinely mixed
  • A carve-out, where the reported numbers describe a business that has never stood alone

Where it does not apply

  • An audit. This is not an opinion on whether the accounts comply with anything
  • A pre-revenue or early-stage company, where there is no recurring earnings base to normalise
  • A listed acquisition where you have no access beyond public filings; the analysis needs the general ledger, not the annual report

How this prepares you for the assessment

This is one of 17 courses, and none of them is required for the Verified Valuation Assessment. The credential is earned on two timed drills, graded by the same engine that checks this course, and the drill score decides what it says you are capable of, from Foundation through to Distinction.

  • Distinction90%+Works independently across all three core methods.
  • Merit75%+Builds the core models with limited supervision.
  • Pass60%+Understands the mechanics; works through a model with guidance.
  • FoundationcompletedKnows the vocabulary and the shape of each model.