Quality of earnings is the test of whether reported profit reflects durable, cash-generating performance or has been flattered by aggressive accounting: pulled-forward revenue, capitalised costs that should be expensed, one-off gains dressed as recurring, or working-capital manipulation timed around the sale. Boards care because valuation multiples are applied to earnings, so an inflated base inflates the whole price. This research note explains how earnings quality is assessed in your chosen jurisdiction and industry, a framework for normalising EBITDA and testing revenue recognition, the scenarios where adjustments unwind after close, the warning indicators that point to manipulation, realistic impact ranges, and the mitigation tools available, with guidance on when to engage forensic accountants and deal counsel. It is research to inform your own advisers, not accounting or legal advice.
Reference material for informed readers, not advice.
