Series 79 practice questioneasyDue Diligence
What is the main objective of a quality of earnings review in sell-side diligence?
- ATo replace the audited financial statements entirely
- BTo determine whether the company can file on Form S-3
- CTo identify sustainable, recurring earnings and separate them from one-time or non-operating items✓ Correct answer
- DTo set the exact merger exchange ratio
Explanation
Why C — To identify sustainable, recurring earnings and separate them from one-time or non-operating items
To identify sustainable, recurring earnings and separate them from one-time or non-operating items QoE work normalizes EBITDA and revenue so buyers can underwrite the business on a clean, comparable basis. It often surfaces customer credits, timing issues, aggressive accruals, and other adjustments that matter to value.
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