Quality of Earnings (QE) analysis that reaches beyond reported financials.


As a lender, you need confidence that the earnings and cash flow will be sufficient to service your debt. Lenders rely on KFSI for Quality of Earnings reports and related due diligence. Our professionals look beyond the reported financial statement numbers and help identify potential issues.


For lenders to rely on operating cash flow and EBITDA figures, they must have a thorough understanding of borrower’s accounting procedures as well as its method for documenting changes in revenues, expenses, and balance sheet accounts. While Field Examinations focus on the balance sheet, the QE report is designed to provide a professional, third-party analysis of revenues and cash flows. Our QE report helps lenders evaluate the recurring nature and quality of the operations and cash flows, as well as the underlying assets and liabilities of the business.


KFSI’s Quality of Earnings report identifies the impact of items that don’t reflect a business’ actual or normalized performance and cash flow, or are not repeatable or sustainable over time. Some of these might result from accounting choices, others from the business climate or management decisions made regarding operations.


KFSI's QE report also considers the company’s control systems and important elements of its business operations including by client, industry, product line or other relevant metric.


KFSI provides QE services to lenders who offer products ranging from fully secured and cash flow term loans to subordinated loans and equity investments. Our team of professionals asks the difficult questions to gain an understanding of the borrower’s accounting processes and tests the strength of the client’s balance sheet and quality of earnings.


KFSI Quality of Earnings Process

Quality of Earnings Service for Lenders

Fact Checking

EBITDA and earnings numbers are accurate (i.e. the books and records are well kept, accruals are made properly, receivables and inventory are appropriately tracked and reflected in the financial statements)


Sustainable, Recurring Revenue Analysis

The variables that drive these numbers are sustainable long term (significant amounts of earnings are not tied up in accounts receivable, key customer trends are validated and strong, end-market segment reporting is accurate and precise, customer reporting information is accurate, etc.)


Telling the business story

The story of the business is empirically accurate and supportable

Pre-loan and refinancing due diligence

Includes insights into earnings, quality of working capital and analysis of key assets, liabilities and contingent liabilities. It can also include analysis of:

  • Larger customer additions or losses
  • Customer and product line profitability
  • Revenue recognition
  • Operating expense analysis
  • Capital expenditures and future capital expenditure plans


KFSI Quality of Earnings Analytics

  • Unusual trends and variances in internally prepared financial statements.
  • Significant and/or unusual accounting policies
  • Changes in accounting methods, principles, policies, procedures or practices
  • Nature and extent of period-end closing adjustments and reconciling items between general ledger balances and internally prepared financial statements
  • Unusual or nonrecurring items of income or expense
  • Transactions with related parties
  • Proof of cash: analysis of cash receipts and expenditures compared to reported EBITDA
  • Customer sales, concentrations and backlog analysis
  • Analysis of key reserves and allowances
  • Reviews of account reconciliations and agings