Sorai Sorai Decision-Grade Review

QoE Analysis

Automated Quality of Earnings (QoE) Analysis

Quality of earnings analysis is one of the most important parts of financial diligence because it tests whether reported EBITDA is actually sustainable. Sorai gives buyers an automated QoE workflow that captures adjustments, supporting evidence, and EBITDA bridge logic in one reviewable system.

Expert byline

Sorai Editorial

Reviewed by Sorai's financial diligence workflow team

QoE workflow, adjustment taxonomy, and buyer-side EBITDA bridge design

Built for buyer-side QoE workflows Evidence-linked adjustment review Designed for partner and IC readability
Quality of earnings analysis workflow showing EBITDA bridge and adjustment tracking
QoE adjustments, evidence, and EBITDA bridge logic in one view.

Quick answer

Quality of earnings analysis is the buyer-focused review of whether a target's reported earnings reflect recurring, supportable economics after removing non-recurring, non-operating, or misclassified items. In M&A, QoE analysis is what turns headline EBITDA into an adjusted earnings view a buyer can actually underwrite.

adjustment types

8

A useful QoE workflow should make the most common adjustment categories visible and reviewable.

bridge

EBITDA

Sorai keeps reported EBITDA, adjustments, and adjusted EBITDA in one chain.

record

1

Analyst logic, support, and reviewer status stay attached to the same finding.

Core sections

Decision-grade coverage for the specific topic.

Section 01

Definition: What is QoE

Quality of earnings analysis evaluates whether the target's reported profitability represents sustainable earning power rather than one-time noise. Buyers use the work to understand how much of EBITDA is recurring, what should be normalized, and where management's presentation may overstate or understate the true run-rate economics of the business.

That is why QoE is not the same as an audit. The objective is not only whether the financial statements were prepared correctly. The objective is whether the earnings base a buyer is underwriting is real, repeatable, and likely to convert into value after close.

  • Focus on recurring economics instead of headline reported earnings
  • Identify one-time, owner-specific, non-operating, or unsupported items
  • Translate accounting detail into a valuation and negotiation view

Section 02

Typical QoE adjustments (non-recurring items)

A good QoE review usually centers on a predictable set of adjustment types. The challenge is not spotting the category name. It is documenting why the item should be normalized, what support exists, and whether a reviewer agrees with the treatment before the issue reaches the deal model or committee deck.

  • Owner compensation normalization
  • One-time legal or transaction expenses
  • Litigation settlements and unusual claims
  • Non-recurring revenue spikes or pull-forwards
  • Pandemic or disaster-related impacts that are not structural
  • Above-market or below-market related-party arrangements
  • Run-rate cost savings that need evidence and timing support
  • Accounting reclassifications that change EBITDA presentation

Section 03

How Sorai automates QoE

Sorai automates the operating structure around QoE by connecting uploaded schedules, trial balance detail, analyst notes, and reviewer decisions. Instead of letting the adjustment log live in one place and the support live in another, the system keeps the entire adjustment chain readable while the review is active.

That reduces the amount of manual translation required at the end of diligence. When a manager or sponsor asks why EBITDA moved, the explanation already exists in the workflow, tied to evidence and status rather than hidden in email threads or spreadsheet comments.

  • Tag candidate adjustments and route them into a structured review queue
  • Attach source support, comments, and reviewer status to each adjustment
  • Preserve the audit trail behind adjusted EBITDA instead of rebuilding it late

Section 04

EBITDA bridge visualization

The EBITDA bridge is where the QoE story becomes decision-usable. A buyer needs to see reported EBITDA, each material normalization, the logic behind the treatment, and the resulting adjusted EBITDA view. Sorai structures that bridge so each movement is traceable instead of appearing as a set of unexplained spreadsheet line items.

That improves both speed and defensibility. The bridge is easier to read under pressure, and the team can show what changed without losing the evidence behind the movement.

  • Start with reported EBITDA and track every material adjustment to the final view
  • Keep positive and negative adjustments equally visible to reviewers
  • Show why each normalization matters to valuation, debt sizing, or committee confidence

Comparison

Manual vs automated QoE workflows

QoE work still requires judgment, but the operating model around that judgment can either make the review clearer or more fragile.

Dimension Manual QoE process Automated QoE workflow in Sorai
Adjustment tracking Usually lives in spreadsheets with side comments and separate support folders Lives in one structured record with evidence, notes, and reviewer status
Reviewer visibility Managers often see the output only after analysts rebuild the story Managers can see open items, status changes, and support while the work is live
EBITDA bridge quality Bridge logic is easy to lose across versions Each movement stays tied to supporting logic and source context
Final defensibility Depends heavily on analyst memory and cleanup work Depends on a preserved evidence trail built into the workflow

Frequently asked questions

What is the definition of quality of earnings?

Quality of earnings is the buyer-focused analysis of whether reported earnings are recurring and supportable after normalizing non-recurring, non-operating, or unusual items.

What is the difference between QoE and an audit?

An audit focuses on whether the financial statements are fairly presented. QoE focuses on whether the earnings base a buyer is underwriting is sustainable and economically meaningful.

How does Sorai improve QoE analysis in M&A?

Sorai improves QoE analysis by structuring adjustment review, connecting each item to source support, and preserving reviewer decisions so the EBITDA bridge remains readable under deal pressure.

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We will walk through adjustments, EBITDA bridge logic, and the review trail that makes the final output defensible.