Quality of Earnings & Quality of Revenue Analysis

A quality of earnings analysis is often conducted in an M&A transaction during financial due diligence. Throughout this analysis, historical revenue, earnings, and cash flows are scrutinized to validate reported operations and earnings adjustments or addbacks proposed by a business’s management team. Ultimately, the purpose of the analysis is to determine the persistence of future cash flows, often measured by a normalized EBITDA from which future expectations are established. In a healthcare quality of earnings, the bar is significantly raised as it’s necessary to navigate the nuances affecting the highly regulated and ever-changing healthcare industry.

At VMG we differentiate ourselves by combining our healthcare expertise with our thorough quality of earnings process to produce an informative analysis that identifies both the potential risks and potential upside in a healthcare transaction. By leveraging our healthcare proficiency, we identify shifting trends in operations, including shifts in payor mix, modality mix, and reimbursement, as well as the numerous other nuances facing the healthcare industry that generalists may simply overlook.

In any quality of earnings analysis it’s critical to assess the quality of reported revenue. Ensuring a healthcare business properly recognizes revenue on an accrual basis is fundamental in assessing historical trends in operations. This is particularly important in healthcare as many target businesses report financial statements on a cash basis and may be subject to seasonality, which can further distort a business’ underlying operations. To meet the individual needs of our clients we’ve parsed out the revenue testing performed in our quality of earnings analysis to offer a quality of revenue analysis as a standalone product.

See our comprehensive list of procedures typically performed during our Quality of Earnings and Quality of Revenue engagements.