Transaction Advisory

Quality of Earnings

Mercer Capital assists clients by developing and performing customized due diligence procedures for potential transactions. Our focused approach to quality of earnings analysis generates Insights That Matter to potential buyers and sellers.

Leveraging our valuation experience, our quality of earnings analyses identify and focus on the cash flow, growth, and risk factors that impact value.

Collaborating with clients, our senior staff identifies the most important areas for analysis, allowing us to deliver qualified, objective, and supportable findings. Our goal is to understand the drivers of historical performance and the key risk and growth factors supporting future expectations. Our methods and experience provide our clients with an independent perspective on the quality, stability, and predictability of future cash flows.

Our methodologies and procedures are standard practices executed by some of the most experienced analysts in the industry. 

Our QofE engagements are led by senior professionals with deep transactional experience. 

Mercer Capital’s staff consists of CPAs, CFFs (Certified in Financial Forensics), CFAs, industry experts, big four alums, and other valuation and finance experts. Each quality of earnings engagement is staffed appropriately to ensure that our analysis generates Insights That Matter to potential buyers and sellers.

Analysis Performed

  1. Profitability Analysis – Investigating historical reported financial performance to identify the target’s sustainable – and transferable – earning power.  We measure pro forma run rate EBITDA (or other relevant measures) for acquisition targets.

  2. Revenue Analysis – Investigating revenue data at the product, segment, and customer levels to reveal underlying trends in growth and customer retention.  Procedures include: (1) identifying critical customer concentrations; (2) analyzing gross margin by product, segment, and customer; and (3) customer churn and retention analysis.

  3. Working Capital Analysis – Investigating the components of net working capital required to operating the business.  Procedures includes: (1) examining collections history, bad debts, and turnover; (2) analyzing inventory components and turnover; (3) reviewing prepaid expenses and operating expense accruals; and (4) assessing impact of seasonality on required working capital levels.

Our QofE engagements are led by senior professionals with deep transactional experience.  We leverage that experience to customize procedures to generate Insights That Matter for the specific transaction under consideration.

The areas above are broad and may include a wide array of sub-areas to investigate. Sub-areas include:

  • Workforce / employee analysis
  • Intangible asset analysis
  • Location analysis
  • Segment analysis
  • Margin and expense analysis
  • Working capital analysis
  • A/R and A/P analysis
  • A/R aging and inventory analysis
  • Billing and collection policies
  • Proof of cash and revenue analysis
  • Capital structure analysis

Professionals

Research and Resources