Thorough investigation into the quality of earnings helps buyers
decide if the price of a business is right.
When it comes to buying a business, paying too much for it can have
serious ramifications, affecting financing along with the future
revenue of your business. That's why it's so critical to
understand whether the amount of earnings the vendor is claiming
the business earns is sustainable—and the quality of those
earnings—before you finalize the deal.
Being aware of the quality of earnings isn't just about looking
at the numbers, although that's an important indicator. It
requires developing a thorough understanding of the target's
business.
"We spend several hours talking with management of the target
company before we even look at the detail behind the financial
statements," says John Caggianiello, CA, Senior Vice President
and Director, MNP Corporate Finance in Toronto."That
conversation gets us the information we need to determine the risk
areas for our
