Quality of earnings

The quality of earnings (QoE) review is the central analytical procedure in financial due diligence, evaluating how accurately reported accounting results reflect the company's true recurring economic performance. It constructs a normalised EBITDA — restating non-recurring items, above-market related party transactions, accounting policy anomalies and working capital distortions — and produces a normalised margin, normalised working capital and adjusted net debt. QoE conclusions directly condition the acquisition price and the warranty scope negotiated in the SPA.

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Example: QoE on a Swiss SME reveals: accounting EBITDA CHF 2.7 million → restatement of above-market owner remuneration (+CHF 200,000) + exclusion of non-recurring restructuring charges (+CHF 180,000) - below-market intragroup rent (-CHF 120,000) = normalised EBITDA CHF 2.96 million. At an 8x multiple, this CHF 260,000 normalisation gap represents CHF 2.1 million of additional acquisition value — illustrating the direct economic stakes of QoE in every transaction.

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At Hectelion, quality of earnings is the foundation of every financial due diligence mandate — every restatement is documented, defensible and quantified in its impact on acquisition value.