Today I want to talk to you about quality of earnings (QofE or QoE). I want to focus on this single concept because it’s become one of the reasons — if not the leading reason — why healthcare transactions go sideways.
Before I get further into this discussion, I thought it would be helpful to define QofE. Investopedia does a good job explaining the concept, with the publication stating, “A company’s QofE is revealed by dismissing any anomalies, accounting tricks, or one-time events that may skew the real bottom-line numbers on performance. Once these are removed, the earnings that are derived from higher sales or lower costs can be seen clearly.” The publication goes on to note that the more closely companies follow generally accepted accounting principles (GAAP), the higher its QofE will likely be.
